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Justice R. Subramanian of the Madras High Court on Monday directed air carrier SpiceJet Limited to wind up the company for non-payment of over $24 million to SR Technics, a Swiss company which maintains, repairs and overhauls aircraft engines, and components.

The Court was hearing a petition filed by Credit Suisse AG, a Zurich based stock corporation, which had been assigned the right to receive the payments due to SR Technics. He directed an Official Liquidator to take over the assets of SpiceJet.

According to the petitioner (Credit Suisse on behalf of SR technics), SpiceJet had reached an agreement with SR Technics for maintenance, repair and overhauling (MRO) services for a period of 10 years on November 2011. Upon providing of services under the agreement, SR Technics had raised invoices and the SpiceJet had issued seven bills of exchange for the monies due under the invoices. SpiceJet also acknowledge(s) the debts from time to time by issuing certificate of acceptance in relation to the bills of exchange implying that it does not dispute the correctness of the claim made in the invoices. Upon the knowledge that SpiceJet will not be able to pay the money owed the petitioner issued a statutory notice.

Contention of Petitioner

Advocate Rahul Balaji representing the petitiners cotended that:

1. There must be a debt existing; and
2. It should be proved that the respondent is unable to pay the debt.
3. Once the above two requirements are satisfied, the other considerations namely, whether the debt is enforceable or whether the defence raised by the respondent is bona fide or not, need not be gone into at this stage.

Mr. Balaji has contended that a debt exists and a notice was issued under the Companies Act to the Airlines. Section 433 (e) of the Companies Act 1956, provides for winding up of a Company, if it is found that the Company is unable to pay its debts Once a notice has been issued under Section 434(1) (a) of the Act and the failure of the company which in receipt of the said notice to repay the amount within three weeks or to secure the debt or to compound for it becomes evident, the winding-up procedure inevitably follows. To dispute the admission of winding up, the respondent company should prove a bona fide dispute or unenforceability of debt under Indian law, contended Mr. Balaji.

Further, SpiceJet has not disputed the utilisation of services by SR Technics. This, along with the fact that the invoices were accepted, Bills of Exchange and Certificates of Acceptance were issued by the first party airlines negates their argument that the debt is non-enforceable.

Per contra, Mr. V. Ramakrishnan, Senior Counsel appearing for the respondent contended that a mere existence of a debt and its non-payment would not attract an order of winding up under Section 433 of the Companies Act. He submitted that it is open to the respondent resisting a winding up petition to show that there is a bona fide dispute regarding the debt. It has been submitted that enforcement of such debt would be against the public policy in India. Further that the documents relied upon in support of the debt or the documents relied upon to prove the debt are not properly stamped in accordance with the law relating to stamping in India.

Order

The Court enumerated the requirements under Section 434 of the Companies Act, when a Company can be deemed to be unable to pay its debts.

• There should be an outstanding of more than Rs.500/-;
•  A notice in writing to be delivered at the registered office of the respondent Company and a neglect on the part of the respondent Company either to pay the money demanded within a period of three weeks or to secure or compound for it to the reasonable satisfaction of the creditor.

“Once a notice is issued under Section 434 of the Companies Act, a deeming fiction is created regarding the inability to pay the debt, therefore it becomes the obligation on the part of the respondent/debtor Company to show that the debt itself is illegal or that there is no debt at all, if it has to escape the consequence of issuance of a winding up notice,” the Court stated.

The Court referred to Supreme Court decision in Mathusudan Gordhandas & Co. v. Madhu Woollen Industries (P) Ltd., which gave the three pronged test to decide a winding up proceeding is to be admitted

1. The defence of the Company is in good faith and one of substance;
2. The defence is likely to succeed on point of law; and
3. The company adduces prima facie proof of the facts on which the defence depends

On the question of stamping the court held that:

 When a Division Bench of this Court had categorically laid down that even production of the document is unnecessary as the execution of the document is not denied, I do not think it will be proper for me to dwell into the aspect of stamping or the character of the document whether it is a bill of exchange payable on demand or it is a bill of exchange payable otherwise on demand etc. in these proceedings",

On the SpiceJet's submission that endorsements made are not in the proper form as stipulated by the agreement, the court opines that the Airlines was aware of the ability of SR Technics to endorse the Bills of Exchange in favour of Credit Suisse AG since the 2012 supplemental agreement between SpiceJet and SR Technics had a clause to that effect. It was only in pursuance of the agreement that certificates of acceptance in support of such Bills of Exchange were issued by the respondent company.

Thus the Court ordered winding up of SpiceJet noting that “it has miserably failed to satisfy the three pronged test suggested by the Hon’ble Supreme Court in Mathusudan Gordhandas & Co. v. Madhu Woollen Industries (P) Ltd., supra, and hence had rendered itself liable to be wound up for its inability to pay its debts under Section 433 (e) of the Companies Act 1956.” The Official Liquidator was directed to take over the assets of the respondent Company.

Case Title: Credit Suisse AG v. SpiceJet Limited