New Delhi: The Madras High Court Tuesday ordered the winding up of SpiceJet Ltd over non-payment of dues of around $24 million (approx. Rs 181.11 crore) to Switzerland-based stock corporation, Credit Suisse AG. The Indian airline has categorically admitted liability of debt, a single-judge bench held as it allowed Credit Suisse’s winding-up petition.
However, Justice R. Subramanian’s court kept its verdict in abeyance for a period of three weeks if SpiceJet deposits an amount equivalent to $5 million (approx. Rs 37.73 crore) within two weeks. In this period, the airline will get an opportunity to avail of appropriate legal remedies against the order.
SpiceJet said in a statement that it will initiate “appropriate remedial steps including preferring an appeal” against the order before a higher bench “within the time frame” allocated. “The company believes it has a good case on merits and is hopeful of having favourable outcome in the appeal,” it reportedly said.
The winding-up process allows the liquidator to sell off stocks, pay off the creditors, and distribute the assets to partners and shareholders.
According to the order, the documents placed on record by the creditor established that SpiceJet couldn’t repay its debt to Credit Suisse. In ruling so, the court rejected SpiceJet’s contention that the debt was unenforceable under Indian law, saying that the airline failed to raise “bonafide defences” to prove so.
The court held the same cannot be decided at the stage of admission of the winding-up petition.
“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 HC held.
At the time of admitting a winding-up petition, the court only needs to examine the bonafides or the validity of the defences taken by the debtor firm, it said. This was in accordance with a three-pronged test enumerated by the Supreme Court, which SpiceJet could not pass with its arguments, the court added.
What Credit Suisse said
In its petition, Credit Suisse claimed that SpiceJet availed the services of a Swiss firm, SR Technics, for maintenance, repair and overhauling of aircraft engines, modules, components, assemblies and parts that are mandatory for its operations.
An agreement for this was entered into for a period of 10 years on 24 November 2011. On 24 August 2012, a supplemental agreement was entered into to change certain terms of the deal.
The amendments included extension of time for payment of monies due under various invoices raised by SR Technics and also a deferred payment scheme, which was duly accepted by SpiceJet.
A month later, SR Technics assigned all its present and future rights to receive payments under the agreement to Credit Suisse. This included the bills of exchange issued by SpiceJet pursuant to the two agreements.
In view of the assignments, Credit Suisse submitted that it was entitled to receive payments of the monies due under seven invoices from SpiceJet, totalling $24 million.
Credit Suisse said SpiceJet had acknowledged the debt from time to time by issuing certificates of acceptance in relation to the bills of exchange, which implied the airline hadn’t disputed the claims made in the invoices.
Despite repeated requests, SpiceJet didn’t make payments under the various invoices, the Swiss company said. Since the airline didn’t honour its commitment, Credit Suisse approached the Madras High Court under the Companies Act, seeking the liquidation of the airline.
The company filed a petition under sections 433 (e) and (f) and 434, read with 439, of the Companies Act. While Section 433 underscores the circumstances in which a company may be wound up, Section 434 states as to “when a company can be deemed to be unable to pay its debts”. Section 439 deals with “provisions as to applications for winding up”.
Debt not legally enforceable, argued SpiceJet
SpiceJet contended that the debt isn’t legally enforceable and Credit Suisse is not a creditor of SpiceJet. In the absence of any contractual relationship of debtor and creditor, a winding-up proceeding will not hold, it said.
It also argued that the deals between SpiceJet and SR Technics don’t authorise assignment to the present petitioner.
The fact that SR Technics had also issued a notice under the Companies Act on 21 January 2015 and didn’t pursue the winding-up was also projected as a defence as Spicejet denied the liability.
It claimed that the documents relied upon by Credit Suisse, particularly the assignment deeds, the bills of exchange and the acknowledgements/certificates of acceptance, were not properly stamped, in accordance with the requirements of the Indian Stamp Act. So, these bills of exchange can’t be taken as valid evidence of an existing debt, and can’t be enforced in an Indian court, the company said.
If the debt isn’t proved, the question of inability to repay doesn’t arise. Therefore, an order of winding up under the Companies Act can’t be issued, it argued.
SpiceJet also contended that SR Technics didn’t have a valid licence to carry out aircraft maintenance services from the Director General of Civil Aviation (DGCA), as required under the Aircraft Act, and therefore the enforcement of the claim would be against public policy.
Court rejected SpiceJet’s arguments
The high court dwelled upon the scope of the Companies Act and the circumstances in which a company may be wound up.
The court noted that, according to the law, there should be an outstanding debt of over Rs 500, a notice in writing to be delivered at the registered office of the debtor company, and a neglect on the part of the debtor 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.
Based on this three-pronged test laid down by the Supreme Court, the HC said, the court needs to ascertain whether there is existence of a debt or not.
In this case, the court held that the same had been proved and that SpiceJet’s defence was not in good faith.
On SpiceJet’s argument related to stamping of bills of exchange, the court said the same will be examined at the time when the actual enforcement or examination of the claim of the petitioner by the official liquidator takes place.
It added that SpiceJet chose to carry on a business transaction with SR Technics despite knowing that it did not have DGCA approval.
“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,” the court ruled.
(Edited by Amit Upadhyaya)