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SpiceJet Vs Credit Suisse AG- Madras High Court Dismisses Appeal Against Airline's Admission Of Winding Up

Sebin James
11 Jan 2022 6:29 AM GMT
SpiceJet Vs Credit Suisse AG- Madras High Court Dismisses Appeal Against Airlines Admission Of Winding Up

Madras High Court has dismissed the appeal preferred by SpiceJet against a single-judge bench order for admission of its winding up on Credit Suisse AG's Company Petition. Yesterday, Madras High Court had reserved the pronouncement of judgment on SpiceJet's appeal for today. After hearing the counsels appearing for SpiceJet and Credit Suisse at length, A Division Bench of...

Madras High Court has dismissed the appeal preferred by SpiceJet against a single-judge bench order for admission of its winding up on Credit Suisse AG's Company Petition.

Yesterday, Madras High Court had reserved the pronouncement of judgment on SpiceJet's appeal for today.

After hearing the counsels appearing for SpiceJet and Credit Suisse at length, A Division Bench of Sathi Kumar Sukumara Kurup and Paresh Upadhyay noted in the order that the Original Second Appeals were dismissed and the Connected Civil Miscellaneous Petitions were accordingly disposed off. Since the stay on the operation of the impugned order is till today, the bench agreed to extend the application of stay order till 28th January so as to afford the appellant an opportunity to approach the Supreme Court. Since the court has not entertained the appeal at all, there would be no changes to the order of the single judge bench.

The grievances of the appellant airlines and the issues framed by the court were pertaining to the alleged errors in the single judge bench order that does the following:
(i) admission of the winding-up petition, which is filed invoking Sections 433 (e) and (f) of the Companies Act, 1956, and
(ii) appointment of the Official Liquidator, High Court of Madras as Provisional Liquidator.

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.


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. 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 at various occasions through a deferred payment scheme.

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.

Arguments In Gist & Court's Observations

The appellant senior counsel. V. Ramakrishnan, primarily contended that the documents relied on by the petitioner Credit Suisse, Switzerland are not stamped and therefore the Courts in India will not take cognisance thereof. Secondly, the Airlines contended that  S.R.Technics did not have a valid license from the Director-General of Civil Aviation (DGCA) and therefore it could not have legally maintained the Aircrafts / Engines of the appellant-Company, which points to a bona fide dispute about the payment for services.
The counsel also submitted that the two subsequent modifications to the original single judge bench order was erroneous since it involved substantive amendments and not just clerical errors.
The counsel for Credit Suisse, Advocate Rahul Balaji, submitted that the order passed by the Company Court ordering admission of the winding-up petition under Section 433 (e) and (f) of the Act and appointment of the Official Liquidator, High Court, Madras as Provisional Liquidator can not be said to be erroneous.

The Division Bench independently examined if there was a defence of bona fide dispute as against the deeming fiction of inability to pay back to the creditor under Section 434 (1) (a) of the Act.

At the beginning, the court noted that the creditor is a named endorsee as accepted by the Airlines by referring to the supplemental agreement that talks about availing a deferred payment scheme by the latter. The deferred payment scheme for invoices and Bills of Exchange has made specific reference to the Switzerland Corporation, the court observed.

"...It is duly endorsed by the Banker of the appellant-Company as well. On the basis of these documents, Credit Suisse, Switzerland made payment to S.R.Technics on behalf of the appellant Spice Jet with specific reference to 'Supplementary Agreement for deferred payment between S.R.Technics and the Appellant dated 24 August 2012', as referred above. It is that amount, which the appellant owes to Credit Suisse, Switzerland, the non-payment of which has led to filing of and admission of the winding up petition as ordered by learned Single Judge. From record it transpires that the said due needs to be accepted as admitted dues", the court points out.

About the requirement of stamping the documents, the court outrightly rejected that argument's relevance for the current appeal against the admission of winding up. According to the court, the only point to be verified is whether the debt is bonafide disputed and whether the said defence is a substantial one.

On the second issue of bona fide dispute arising from the claimed unawareness of SpiceJet regarding non-certification of SR technics by DGCA, the court notes as below:

"It is the case of the appellant Company and a show is made that, had it known this earlier, it would not have availed the service from SR Technics. For this purpose, reference is also made to the communication dated 20 February 2020 by the Office of the Director General of Civil Aviation, Government of India to the appellant Company. Record shows that the appellant Company blows hot and cold together to suit its convenience. At this stage, reference needs to be made to the stand which the appellant Company had taken before years in the International Arbitration proceedings..."

The court then examines an excerpt from the Arbitral Award in favour of SR Technics years ago, and points out that SpiceJet had already taken the plea of non-certification of SR Technics by DGCA which might have repercussions to the financial interests of the Company.

Therefore, both the defences put forward by SpiceJet was rejected by the Division Bench as not bona fide and held that admission of the petition need not be interfered with. 

 The court also disregarded SpiceJet's grievance about the appointment of a Provisional Liquidator. The bench noted that prayer in that regard was already there in main petition and in one of the miscellaneous petitions by Credit Suisse AG. The said prayer was granted by the single judge bench while admitting the petition, after taking due note of the contest on record by the Airlines.

Before parting, the bench also made the following observation in the judgment:

"...It is noted that the winding-up petition which was filed in the year 2015 could be taken up for admission only in the year 2021. Though no observation for / or against any of the parties in this regard is made, the fact remains that the said pendency has not helped the petitioner in any manner. The appellant claims to be one of the largest passenger carrier in the civil aviation industry of our Country, which by its own stand has carried hundreds of thousands of passengers for all these years without maintenance of its Air Crafts and engines from any service provider with valid license from DGCA. The admission of petition under Section 433 (f) of the Act may become more relevant in this background."

Court Room Exchange Yesterday

For SpiceJet

Yesterday, SpiceJet replied to the Credit Suisse AG's arguments last Thursday. About Single judge bench modifying the original order dated 6th December twice, the appellant iterated such modification should always be limited to clerical errors and not substantive parts of the order. SpiceJet also argued that the single judge bench should have considered if the respondent company could have been wound up under Section 433 of the Companies Act and if such an order can be given in a Company Petition. The Senior Counsel indicated that the single judge has not properly differentiated between winding up/ admission of winding up. He argued that the judge gave the order despite his stand that admission of winding up is not automatic even if there is a debt.

Thereafter, the counsel referred to paragraph 23 of the original order which, according to him, directed wounding up SpiceJet and appointing an official liquidator to take charge of the assets of the company. The said paragraph was removed by express mention in the final modified order. Therefore, the counsel argued that these were not just clerical errors, nut major errors in the court's reasoning.

The counsel also added that Bills of Exchanges alone will not entitlethe respondent banker, Swiss Corporation Credit Suisse, to get paid. The respondent corporation had submitted that SR Technics assigned all its present and future rights to receive payments under the agreement to Credit Suisse, including Bills of Exchange.

"Assignee steps into the shoes of the assignor. If the shoes pinch, he will have to take the pinch", Senior Counsel V. Ramakrishnan added.

He also added that there were many factual issues involved. Though the single judge bench found that SR Technics was unapproved by Directorate General of Civil Aviation (DGCA), the court went on to say that SpiceJet didn't cancel the contract even when it was aware of DGCA non approval.

Approval Certificate is mandatory as given in Civil Aviation Requirements. Though SR Technics had approval to carry out aircraft maintenance from 2007- 2009, thereafter the aircraft maintenance was carried out by SR Technics without approval which SpiceJet came to know about only in 2020 via a letter from DGCA.

About the second finding by the single judge bench that appellant was aware of the current position of SR Technics with respect to DGCA approval. The single judge bench had mentioned in the previous order that there was a finding to that effect in the previous arbitral award in favour of SR Technics, which the counsel disagreed with. According to the Senior Counsel, there was no such finding in the arbitral award. Had they signed the Bills Of Exchange fully aware of SR Technic's alleged non approval, only then would commercial morality come into play. He added that the appellant aircraft carrier's case before the Arbitral Tribunal was fraudulent misrepresentation by SR Technics. In appeal before Madras High Court, the ground of non-approval from DGCA alone is enough, added the counsel.

Unless SR Technics was approved as per Civil Aviation Regulations, SR Technics would not be able to do any maintenance. Therefore, the appellant was justified in not making the payment to the Banker Credit Suisse AG even if there are Bills of Exchange.

Even though last paragraph of the impugned order says that connected petitions have been closed, its unclear if they have been closed or not since the said paragraph stands deleted by later modifications, submitted the counsel. Appointment of the provisional liquidator was allowed though it was not pleaded. The counsel also added that nothing happened between 15th December and 23rd December to warrant the appointment of provisional liquidator. It was also argued that there was no reasonable notification/ reasonable opportunity to be heard according to Section 420 of the Companies Act.

Since the judge erred in so many aspects, the entire order by the single judge bench must be set aside, submitted the counsel.

On the stamping of documents, the senior counsel acknowledged that there is no requirement of stamping the invoice and Certificates of Acceptance. However, the counsel pointed out that engine maintenance agreement, supplemental agreement, agreement between SR Technics and the Banker etc. have not been stamped. Most importantly, the contentious matter of stamping/ not stamping Bills of Exchange also arise, added the counsel.

The counsel submitted that the appellant had made an application in 2020 for production of original documents. The counsel argued that in the absence of original documents, there would be no value for secondary evidence. In another application, the appellant had also prayed for impounding such instruments upon production if its not original. While the first application was allowed, the second application was deferred until the production of original documents. With reference to this deferred application, the counsel argued that they are unaware if the connected application has been closed or not via the final order of the single judge bench.

Court is an authority entitled to receive evidence. It can either receive or not act upon the documents. Mere production and taking it into account are admission, submitted the counsel.

On the question of whether the provisions of Stamp Act would apply to a Company Court or only Civil Courts, the counsel iterated that it is applicable to both. Stamp Act applies to every authority including a Civil Court and a Company Court. Refusing to pay the money if its not stamped is a statutory right, he argued.

For Credit Suisse AG

The counsel, Advocate Rahul Balaji, argued that application was filed for appointment of an official liquidator earlier, notice was given to the appellant and even counter was filed. In such a situation, it was not true for the appellant to say that it was not reasonably notified. The appellant has tried to create an impression that the single judge bench did not give much importance to connected matters while hearing the main company petition which is also not true, added the counsel.

Further, it was submitted that the single judge bench understood that the court was hearing the admission of winding up and not winding up per se. The judge has clearly specified that the enforceability or otherwise of the debt need not be gone into in admission for winding up. The single judge bench categorically stated that it only deals with the admissions of winding up and the enforceability of debt will be examined by the Official Liquidator upon a proved inability to pay the debts, added the counsel.

This awareness about the distinction between admission of winding up and winding up was also why the single judge bench refused to examine the issue of stamping the documents. About DGCA approval, during the arbitral; proceedings in London, it was made clear that SR Technics have foreign approval which is sufficient. The arbitral tribunal has only stated that it was SpiceJet's responsibility to enquire about the DGCA approval of SR Technis if there wasn't such approval. Before the arbitral tribunal, it was specifically pleaded by SpiceJet that the contract between them and SR Technics was illegal, null and void. However, Arbitral award in favour of SR Technics rejected this argument and clearly held that SpiceJet knew about DGCA and SR Technic's certification/ non-certification long before in 2012, submitted Mr. Balaji. Certificates of Acceptance were given by SpiceJet fully having knowledge about SRT's license, added the counsel. Before the arbitral tribunal, SpiceJet also lost the counterclaim they filed, pointed out the counsel.

Since the admission of winding up is not akin to recovery proceedings, the single judge bench rightly did not look into the matter of stamping the Bills of Exchange, submitted the counsel. Company Courts cannot enforce the debt or seek a recovery in winding up petition neither do they act upon evidence, submitted Credit Suisse. The counsel also added that he had a right to recover the amount from Switzerland or England. If he had chosen for a foreign award, the requirement of stamping the documents would not have arisen. He also has the option of paying the stamp duty here before the official liquidator here.

The financial condition of SpiceJet is also precarious and Credit Suisse AG has taken a plea to that effect, added the counsel. However, SpiceJet has not produced any documents to the contrary, added Mr. Balaji.

Mr. Balaji also pointed out that SpiceJet initially took the stand that the entire contract was subject to English law and an arbitral award was passed against them. Afterwards, they took the stand that they will ignore the findings and start the proceedings afresh in India.

About the Bills of Exchange, Mr. Balaji submitted that it was their specific plea that the BoEs were endorsed to them, and they were not just the assignees of rights. Credit Suisse has a right as an assignee and a right as the holder in due course to recover, submitted Mr. Balaji.

Referring to the clauses of contract, the counsel also added that it clearly mentions about the Bills of Exchange being endorsed to the Banker Corporation.

Hearing From Day 1- 'Claim Not Legally Enforceable, Admission Of Winding Up Laden With Procedural Infirmities': SpiceJet Files Appeal Before Madras High Court

Hearing From Day 2- Appeal Against Admission Of Winding Up: 'Moonshine Defence By SpiceJet, Ploy To Avoid Liability': Swiss Corporation Argues Before Madras High Court

Case Title: SpiceJet Limited v. Credit Suisse AG

Case No: OSA/1/2022 & Connected Matters

Citation: 2022 LiveLaw (Mad) 11

Also Read: Madras High Court Orders Winding Up Of SpiceJet Ltd, Official Liquidator To Take Over The Company Assets

Click Here To Read/ Download Order

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