Madras High Court allows winding up of SpiceJet, directs liquidator to take over assets

The Madras High Court on Monday allowed a plea by Credit Suisse, a stock corporation registered under the laws of Switzerland, seeking winding up of SpiceJet and directed the official liquidator to take over the company’s assets (Credit Suisse AG v. SpiceJet Limited)..Justice R Subramanian had reserved orders in the petition on November 2 and pronounced the judgment on December 6..Credit Suisse sought the winding up of Spicejet alleging that the airline was unable to pay its debts. It was submitted that Spicejet had availed the services of SR Technics, Switzerland for maintenance, repair and overhauling of aircraft engines, modules, components, assemblies and parts which are mandatory for its operations.It was stated that an agreement for services for a period of 10 years was entered into between Spicejet and SR Technics in 2011, and the terms of payment were also agreed upon.On provision of the services, SR Technics had raised invoices after which Spicejet had issued seven bills of exchange for the monies due under the invoices. The airline also acknowledged the debts from time to time by issuing certificates of acceptance in relation to the bills of exchange..In 2012, Credit Suisse entered a financing agreement with SR Technics and was assigned all present and future rights to receive payments in relation to the latter's deal with Spicejet.Pursuant to this, Credit Suisse made several requests to Spicejet to make the payments, and when the same were not honoured and it was reliably learnt that Spicejet is not in a position to meet its financial obligations, a statutory notice was issued. Owing to the fact that Spicejet did not reply to the notice, a suit for winding up was initiated..Spicejet contended that the alleged debts were not legally enforceable and that Credit Suisse was not one of its creditors. Therefore, in the absence of a contractual relationship, there cannot be a winding up proceeding.Ramakrishnan argued that, in fact, SR Technics had also issued a notice to Spicejet but did not pursue the same. Further, it was submitted that the agreement between Spicejet and SR Technics did not authorise assignment to Credit Suisse..It was also submitted that the assignment deeds, bills of exchange and acknowledgements/certificates of acceptance were not properly stamped in accordance with the Indian Stamp Act. Therefore, they could not be relied upon to establish a debt in an Indian court.SR Technics did not have a valid license to carry out aircraft maintenance from the Director General of Civil Aviation (DGCA) and thus, enforcement of the claim would be against public policy, Ramakrishnan further contended..Counsel for the petitioner vehemently argued in favour of winding up proceedings since the company was unable to pay its debts. It was stated that if a statutory notice is not responded to, it would strengthen the burden on the debtor to show that the debt is unenforceable under Indian law.Further, it was pointed out that enforceability need not be gone in to by the Court at the stage of issuing a notice of winding up or admission of a winding up petition, and the same could be gone into by the official liquidator..Rebutting Spicejet's contention regarding unenforceability of the debt, Balaji stated that in the absence of a dispute regarding the fact that the debtor company had availed the services of SR Technics, it was not open to Spicejet to contend that the debts were unenforceable or that their enforcement would be against the public policy.Further refuting Spicejet's contention that the documents were not stamped in accordance with the law, it was submitted that the bills of exchange, being documents that are payable on demand, do not require stamping..Essentially, it was argued that if there is an existing debt and the respondent is proved to have been unable to pay the debt, other considerations need not be gone into at this stage..After considering the rival contentions, Justice Subramanian discussed a judgment of the Supreme Court in Mathusudan Gordhandas & Co v. Madhu Woollen Industries (P) Ltd, and listed the following considerations to be kept in mind by a court when admitting a winding up proceeding:i. The defence of the Company is in good faith and one of substance;ii. The defence is likely to succeed on point of law; andiii. The company adduces prima facie proof of the facts on which the defence depends.In light of this, the single-judge opined that a company court need not render a conclusive finding on the enforceability of the debt while examining the issuance of notice of winding up or while examining the admission of a winding up petition. The question of documents being stamped will have to be examined at the time when the actual enforcement or examination of the claim of the petitioner by the official liquidator takes place, the Court held..To support this, the Court relied on a Division Bench judgment of the Madras High Court in Michael Hart v. M/s Ninestars Information Technologies Ltd, where the scope of Section 433 of the Companies Act was examined. In that case, it was held that the company court, while examining the issuance of notice or admission of a company petition, need not pronounce upon the validity or enforceability of the debt.“I am of the considered opinion that the question relating to stamping or sufficiency of stamping is really foreign to the scope of the proceedings before me,” said Justice Subramanian..Similarly, the Court did not find merit in the contention that the endorsements made are not in the form required, and therefore, the debt cannot be enforced, noting that the same was not a bona fide defence. The Court drew attention to a supplemental agreement which enabled SR Technics to endorse the bills of exchange to Credit Suisse, and held that therefore, Spicejet was aware of the fact that the bills of exchange could be endorsed in favour of the petitioner..With respect to the contention regarding certification of SR Technics, it was noted that a clause in the agreement allowed Spicejet to terminate the agreement if any certification for rendering services pursuant to this agreement was suspended or revoked by the concerned authority. However, Spicejet chose to avail their services despite knowing SR did not possess valid authorisation.“Admittedly, the respondent Company had not chosen to terminate the contract. It had continued to avail the services. Therefore in my opinion, it cannot now turn around and say, there is a violation of the provisions of the Aircraft Act or the C.A.R. Rules made there under and therefore the liability ceased.”.Therefore, finding that Spicejet “miserably failed to satisfy the three pronged test,” the petition was allowed and the airline company was directed to be wound up..[Read Judgment]