M/S. Classic Diamonds (India) Limited v. Icici Bank Limited

1. The appellant before us is challenging order and judgment in Company Petition No. 317 of 2012 dated 19th October 2015. The admitted facts are that the appellant herein M/s. Classis Diamonds (India) Ltd. holds 49% shareholdings in one Aarohi Diamonds Ltd. The said Aarohi Diamonds Limited had obtained a credit facility to the tune of 7 million US$ from respondent - ICICI Bank Limited. The said loan was secured by a corporate guarantee by the present appellant in favour of ICICI Bank Limited. Later on, the credit facility was reduced to 5 million US$. Apparently, the principal borrower Aarohi Diamonds' defaulted in repayment of the said loan to the respondent bank which resulted in the respondent Bank cancelling the cash credit facility under which the loan was obtained. The consequence of the same would be demanding the borrower to make payment of dues which is said to be 5.15 million US$ as on 3rd January 2012.

2. So far as the appellant is concerned, the respondent Bank invoked corporate guarantee on 6 February 2012 calling upon the appellant Company to pay a sum of 5.20 million US$ which was due as on 6 February 2012. When the appellant failed to comply with the demand of the respondent Bank, a statutory demand notice was issued by the respondent Bank invoking sections 433 and 434 of the Companies Act on 16 February 2012. This would amount to 21.71 crores of Indian Rupees as on 14 February 2012. When the demand was not complied with in response to the statutory notice, the respondent Bank approached the Company Court with Company Petition seeking winding up of the appellant Company.

3. The appellant Company, per contra, raised various defences. The relevant defences which came up for consideration before the learned Judge, are that the contract of Corporate Guarantee was executed with the branch of the respondent Bank at Hongkong. To substantiate this contention, it is contended that for the purpose of banking transaction, the branch is a separate entity from the head office or other offices and branches of the said bank, was the stand of the appellant Company. According to them, in the light of the above fact, there is no privity of contract between the respondent Bank in carrying on business at its registered office or its corporate office at Mumbai and the appellant Company.

4. The second contention was with regard to insufficiency of stamp duty so far as the document of Corporate Guarantee. Therefore, it cannot be received in evidence or acted upon in a Company Petition. The third contention was that there is no certificate issued by any authorized officer of the respondent Bank in respect of its claim in the petition which was a requirement of the Corporate Guarantee Agreement. Apart from these three contentions, they also alleged that no deductions or reference is made to several payments made by the principal borrower to the respondent Bank in discharge of the guaranteed debt.

5. Several arguments were addressed on behalf of both the parties. Ultimately, learned Judge after referring to the decisions relied upon by the appellant Company in the cases of Agenda Commercial International Ltd. v. Custodian of the Branches of Banco Nacional Ultramarino, (1982) 2 SCC 482 and Chainrup Sampatram v. Punjab and Sing Bank, 2008 Indian CAL 766, opined that the law laid down in those decisions pertains to jurisdiction of the Court to entertain a dispute with a particular branch and reflects on the situs of the debts or situs of the respondent branch while deciding the issue of jurisdiction. The learned Judge opines that the question of identity and separate existence of a branch at the time of considering the point of privity of contract, was considered in the above cases. In other words, according to learned Judge, the issue involved in the present case is when a constituent enters into a transaction with the branch of a bank, whether a defence could be raised that there was no privity of contract with the head office of the bank. Ultimately, he opines that the contention of jurisdiction will not take much time since the appellant Company's registered office is situated within the State of Maharashtra.

6. It was further held that the document of guarantee was executed by the appellant Company in favour of the respondent Bank wherein it is clearly described as having its registered office at Vadodara, and the corporate office at Mumbai, acting through the Hong Kong branch. Since ICICI Bank is having its registered office at Vadodara, its corporate office at Mumbai and acting through its Hong Kong branch, the argument of the appellant Company that the transaction was actually executed through or with the Hong Kong branch cannot be sustained. We feel there is no need to intervene with this opinion of learned Single Judge.

7. The second contention that was raised before the learned Single Judge was that the document of corporate guarantee was inadequately stamped. Therefore, it cannot be acted upon in the Company Petition. The corporate guarantee in question, admittedly, was executed in the State of Gujarat and it was on a stamp of duty of Rs. 100/- in accordance with the residuary Clause i.e Clause (j) Article no. 5 of Schedule-I to the Bombay Stamp Act as applicable in Gujarat.

8. In the State of Gujarat where the document of corporate guarantee was executed, it was based an adequate stamp duty payable on the instrument so far as that State. According to the appellant, when this document comes to the State of Maharashtra in the light of sections 18 and 19 of Bombay Stamp Act which are applicable in the State of Maharashtra, there is deficit of stamp duty required to be paid on the documents, in accordance with the laws applicable in the State within the stipulated period. If that stamp duty is not paid, according to the appellant, the document cannot be admitted in evidence, and cannot be acted upon. We fail to understand this stand of the appellant in the present Appeal, since we are not concerned with the insufficiency of stamp duty payable on documents of corporate guarantee, but we are concerned with the issue whether the appellant Company deserves to be wound up or not. The Company Court definitely is not required to act upon any particular document while considering whether or not to wind up a Company. It necessarily considers whether the Company is unable to pay its debts. Section 434 is a deeming provision wherein it says that if a creditor to whom the Company is indebted in a sum exceeding the statutory limit, has served upon the Company a demand requiring it to pay the sum so due, and the Company has thereafter neglected to pay the sum or secure the same to the reasonable satisfaction of the creditor, the deeming provision comes into play and the Company is deemed to be unable to pay its debts.

9. In the present case, the Company raises a defence that if the creditor was to enforce the corporate guarantee on account of non-payment of dues by the main borrower, in a Civil Court, the creditor could not be relying upon this document which forms the basis of the debt since it is inadequately stamped. If such defence is taken up in a Civil Suit, and if the document in question is insufficiently stamped, probably, such defence may come to the aid of the appellant. At this stage, there are no steps taken by the creditor to enforce its claim against the guarantor based on the documents of corporate guarantee in the State of Maharashtra. Therefore, definitely, in the present Company Petition, the Company Court was not required to consider such plea raised by the appellant. Therefore, such defence will not hold water in aid of appellant's contention.

10. Then, coming to the last defence, want of certificate by an authorized officer of the respondent Bank, in accordance with the terms of corporate guarantee, the certificate referred to in clause 15, is said to be a conclusive proof of the dues. It could be one of the modes of conclusive evidence against the guarantors. However, there could be other evidence of such conclusive evidence of the dues. In other words, it could be proved by other means of evidence. If there is convincing material on record with regard to the dues of the creditor against whom winding up is sought, it is immaterial whether a certificate of the nature was produced or not.

11. On the other hand, the appellant has not only executed a corporate guarantee, but has also addressed a letter dated 22nd April 2009 to the first respondent bank wherein they have stated as under:

“In consideration of your having agreed to enter into the Facility Letter with the Borrower, we hereby agree, confirm and undertake that (i) the Guarantee continues to subsist and remains valid and binding on us for all the obligations of the Borrower under the Supplementary Facility Letter, Facility Letter and General Commercial Agreement; (ii) we shall do all such acts, deeds and things and execute such deeds, documents and writings as shall be required by you from us in connection with the Facility; and (iii) we, as a Security Party to one or more of the Security Document(s), hereby agree to the terms of the Supplementary Facility Letter (annexed hereto) and each of the other Finance Document(s) (copies of such have been provided to me).”

12. There is another letter addressed by the appellant dated 17 May 2010 a year later, reiterating the position which reads as under:

“In consideration of your having agreed to enter into the Supplementary Facility Letter with the Borrower, we hereby agree, confirm and undertake that (i) the Guarantee continues to subsist and remains valid and binding on us for all the obligations of the Borrower under the Supplementary Facility Letter, Facility Letter and General Commercial Agreement; (ii) we shall do all such acts, deeds and things and execute such deeds, documents and writings as shall be required by you from us in connection with the Facilities.”

13. Apart from these two correspondence, respondent relied upon another document known as Amendatory Facility letter signed by the principal borrower in favour of respondent bank on 9 December 2010. This contains an acceptance endorsed by the appellant herein as a guarantor according to the Amendatory Facility letter. Apart from this, the appellant has also admitted the liability in its balance sheet on 31st March 2011. Apparently, this seems to be a contingent liability in the sense, liability at that stage had not yet accrued at that time since there was no default on the part of the principal borrower to pay the debt. However, it means, in case the principal borrower fails to pay this contingent liability shown in the balance sheet, would be the liability of the appellant. The Company Court by placing reliance on this document was justified in opining that this amount or quantum declared in the balance sheet is nothing but quantum of liability being admitted though it is described as contingent liability. We have no reason to differ from this view.

14. When a statutory notice before lodging Company Petition seeking winding up of the appellant's Company was filed by the respondent Bank, they had made it clear that the respondent bank's debt was over 22 crores, therefore, cannot be said to be disputed with bonafides on the part of the appellant. There is nothing on record to show that in the Company Petition, the respondent Bank has not correctly disclosed the position of the debt as on the date of the petition. On the other hand, in the rejoinder filed to the affidavit in reply before the Company Court, the respondent Bank had disclosed the payment made by the principal borrower to the appellant during the pendency of the petition. After giving credit to all those payments, the dues were shown as 33.53 crores as on the date of filing of rejoinder. This was the amount payable as a guarantor by the appellant to the respondent bank. The contention now raised before us are similar to that of the contentions raised before the Company Court, the discussion and reasoning mentioned above, would clearly indicate that no good grounds are raised by the appellant, warranting interference with the opinion expressed by the Company Court. It is needless to say that in a suit for recovery of money in a civil court, the appellant is entitled to raise all the defences raised before this Court, and if successful, they may not be liable to pay any money. However, the reasoning for winding up would not come in the way of merits of the case of the appellant in case they intend to take similar defences before other forums.

15. With these observations, the Appeal is dismissed.