Non Payment by Guarantor will constitute debt – HC allowed winding up petition


Synopsis of the Case:-

The Petitioner Company is a company which was registered under the laws of Czech Republic.  It had executed the agreement with M/s. Newco Prague, s.r.o. i.e. purchaser company, for sale of 100% equity  interest  of SP of W, a.s. at the purchase price of CZK  230,000,000.    The guarantor of above agreement was  SRM Exploration Private Limited (Respondent). The purchaser company  paid an amount of  CZK  14,625,000 out of the total consideration of  CZK 230,000,000, petitioner sent letters requesting the Purchaser to pay the unpaid installments.  But as the Purchaser company did not make the payment, the petitioner sent a demand notice to the guarantor, namely, the respondent also. After that the Petitioner company through their counsel issued a statutory  winding up notice dated 1stMay, 2009 calling upon the respondent to make payment within three weeks.  Since there was  no  reply and  no receipt of any amount, the petitioner filed the present petition.  It was stated that if a debt is really outstanding, it has to be paid.  The Hon’ble High Court allowed the petition and the provisional liquidator has been appointed  for the respondent company.

The Full Judgement is as follows:-


CO.PET. 248/2009 & Co.Appl.Nos.767/2009 & 1889/2010

N & S & N CONSULTANTS S.R.O                           ….. Petitioner

Through Mr. Vijay K. Singh, Advocate



Through Mr. Amit S.Chadha, Senior Advocate with Mr. Sandeep Khurana with Mr. Dinesh Rastogi, Advocates for respondent.Ms. Manisha with Mr. Srinjoy Banerjee, Advocates for RBI.

Date of Decision:  4thMarch, 2011


1. The present petition has been filed under Section 433(e) read with Section 434 of the Companies Act, 1956 (for short ˜the Act™) for winding up of the respondent-company.

2. The relevant facts of the present case are that the petitioner is a company incorporated under the laws of Czech Republic.  It owns 100% equity shares in another Czech Republic company, namely, SP of W, a.s.

3. On  15thMarch, 2007, petitioner-company executed a Stock Purchase and Sale Agreement (for short ˜Agreement™) with M/s. Newco Prague, s.r.o. (hereinafter referred to as ˜Purchaser™) for sale of 100% equity  interest  of SP of W, a.s. at the purchase price of CZK  230,000,000.   It is pertinent to mention that the Purchaser is also incorporated and established under the laws of Czech Republic.The above purchase price was to be paid by the Purchaser company in terms of Clause 3.1.1. in four installments.  The said clause is reproduced hereinbelow:- Payment of Purchase Price.  The Purchase Price up to the agreed amount shall be paid to the Seller˜s account as follows:-Co. Pet. 248/2009

(i) First instalment.  The first instalment in the amount of 50.000.000,-CZK (fifty million Czech Crowns) shall be paid into the Seller˜s Account within 3 (three) months after the Start of Construction but not earlier than 15 (fifteen) working days after the Registration Date.

(ii)Second instalment. The second instalment in the amount of 50.000.000,-CZK (fifty million Czech Crowns) shall be paid into the Seller˜s Account within 6 (six) months after the Start of Construction.

(iii) Third instalment.  The third instalment in the amount of 50.000.000,-CZK (fifty million Czech Crowns) shall be paid into the Seller˜s Account within 12 (twelve) months after the Start of Construction.

(iv) Forth instalment.  The forth instalment in the amount of 80.000.000,-CZK (eighty million Czech Crowns) shall be paid into the Seller˜s Account at the latest within 12 (twelve) months after the star of the commercial production but not later than 24 (twenty four) months after the Start of Construction.–

4. It is alleged that the respondent, a company incorporated under the Indian Companies Act, 1956  and registered  with the Registrar of Companies, Delhi executed a Guaranty Declaration dated 15thMarch, 2007, whereunder it assumed the duty to pay to petitioner the unpaid installments in accordance with the Agreement Co. Pet. 248/2009 in the event of default by the Purchaser.  Since a lot of emphasis has been placed on Guaranty  Declaration, the same is reproduced hereinbelow for ready reference:-•Guaranty DeclarationSRM Exploration Private Limitedwith registered office at D-146, Saket, New Delhi   110017, India represented on power of attorney by Mr. Ravi Chilukurihereinafter the Guarantorhereby declares toN & S & N Consultants no.: 482 92 583with registered office at Budovatelu 2830, Most, postal code: 434 01, Czech republic represented by the executive Mr. Ing. Miloslav Soldat hereinafter the Sellerthat :

1. It has been acquainted with the obligation of the company NEWCO PRAGUE s.r.o. with registered office at Litynow-Janovg Pratelsyi 81, postal code: 435 42, Czech Republic, which ensues from the Stock Purchase and Sale Agreement concluded on 15.3.2007 between N & S & N Consultants s.r.o., as the Seller and NEWCO PRAGUE as the Purchaser under the terms of which NEWCO PRAGUE s.r.o. is obliged to pay the Seller a purchase price for the shares transferred of CZK 230,000,000 (to wit: two hundred and thirty million Czech crowns) by 30.04.2009 at the latest.

2. It hereby assumes the duty to pay the Seller specified above for the claim ensuring from the Stock Purchase and Sale Agreement of 15.3.2007 a maximumamount of CZK 230,000,000(to wit: two hundred and thirty million Czech crowns) on the condition that the Co. Pet. 248/2009 claim or part thereof specified hereinabove is not satisfied by the Purchaser within the deadline agreed on nor within a reasonable additional deadline specified in the written request sent by the Seller for payment of an particular instalment.

3. The Guarantor undertakes to satisfy the claim of the Seller to the extent of the appropriate unpaid instalment in accordance with the Stock Purchase and Sale Agreement of 15.3.2007 referred to above within a deadline of 30 days of being delivered an announcement from the Seller that its claim has not been satisfied by the Purchaser within the deadline specified or to the specified extent, and that the Seller requests settlement in accordance with this Guaranty Declaration.

4. This guaranty is valid until 15.5.2009 and its validity will expire automatically if it is not enforced within this deadline.  The Seller is entitled to apply the rights ensuing from the  Guaranty Declaration within a deadline no shorter than 15 days prior to its expiry.

5. This Guaranty Declaration is not transferable to third parties.6. The Seller accepts the Guarantor˜s declaration to the extent specified above.Prague, March 15, 2007Sd/- Sd/-   guarantor       Seller–5. It is further alleged that as the Purchaser only paid an amount of  CZK  14,625,000 out of the total consideration of  CZK 230,000,000, petitioner sent letters requesting the Purchaser to pay the unpaid instalments.  But as the Purchaser did not make the Co. Pet. 248/2009 payment, the petitioner sent a demand notice to the guarantor, namely, the respondent.   According to petitioner, it also sent lettersdated 30thMay, 2008 and 14thApril, 2009 demanding payment of unpaid installments.

6. Subsequently, the petitioner through their counsel issued a statutory  winding up notice dated 1stMay, 2009 calling upon the respondent to make payment within three weeks.  As neither any reply nor any amount was received, the petitioner filed the present petition.

7. At the outset, Mr. Amit S. Chadha, learned senior counsel for respondent submits that present petition is not maintainable as there is no debt owed by the respondent to the petitioner.  According to him, no such debt could arise until  a decree on the basis of alleged declaration  of  guaranty  is obtained against the respondent.  Mr. Chadha further argues that there is neither acknowledgment nor inability to pay as respondent is a solvent and running company.

8. Mr. Chadha also submits that the present petition raises disputed questions of fact because no power of attorney  has beenexecuted in favour of Mr. Ravi Chilikuri, the executant  of the Co. Pet. 248/2009 guarantee document.    In fact, according to respondent, there is no power of attorney as mentioned  in the Guaranty Declaration.   He also lays emphasis on the fact that the Guarantee Declaration did not bear stamp or seal of the respondent-company.  He also points out that Mr. Ravi Chilikuri at the relevant time was neither a director nor a shareholder of respondent-company.

9. Mr. Amit S. Chadha also refers to the Board Resolution dated 2ndMarch, 2007 to show that respondent-company in a bid to maintain  check and balance and to avoid misuse of  power by any one person had delegated authority jointly to two persons.

10. In the alternative,  Mr. Chadha submits that the aforesaid Guaranty Declaration is null and void as no mandatory permission has been obtained from the relevant statutory authorities either under Foreign Exchange Management Act, 1999  (˜FEMA™)  or  Foreign Exchange Regulation Act, 1973 (˜FERA™).

11. Mr. Chadha lastly submits that the winding up notice dated 1stMay, 2009 is premature inasmuch as the said notice has been issued on the same date petitioner has made a demand from the Purchaser and that too, when the Purchaser had time to make payment till 3rdCo. Pet. 248/2009June, 2009.   Consequently, according to Mr. Chadha, the statutory notice under Sections 433 and 434 of the Act could have been sent by the  petitioner only  after the Purchaser had failed to pay the  due amount, within the time permitted under the Agreement.

12. In response, Mr. Vijay K. Singh, learned counsel for petitioner submitted that Mr. Ravi Chilikuri is a very senior executive and promoter director of Spice Group.  He states that the Mr. Chilikuri is the group CEO of the respondent Group and further that respondent is one of the companies under the Spice Energy Group.  Therefore, according to him, the authority of Mr. Ravi Chilikuri to sign documents cannot be questioned.

13. After having heard the parties,  I am of the opinion that the present petition raises no disputed question of fact as not only the respondent has under the Guaranty Declaration dated 15thMarch, 2007 assumed the duty to pay to the petitioner in the event of default by the Purchaser but it has also endorsed four promissory notes issued by the Purchaser for the equivalent amount of purchase price,i.e., CZK 230,000,000.   A sample copy of one of the promissory notes is reproduced hereinbelow:-Co. Pet. 248/2009 Promissory notePer Avale Limited SRM Exploration Privat110 017, India   146, Saket, New Delhi  – DRavi Chilukuri- Sd/Prague March 15, 2007I promise to pay for this promissory note on April 30, 2008In order to N & S & N Consultants s.r.o. headquartered at Budovatelu, 2830, Most, Czech Republic The amount of CZK 50,000,000 ______In words : fifty million Czech crowns _______Promisor: Newco Prague s.r.o. seated Litvinov-Janaov, Pratelstvi 81, Czech Republic  Signature of the promisor _ sd/-   Newco Prague s.r.o.Hamaion Basharmal, executivePlace of payment : MostPayable at : CSOB

14. Further, to  show its bona fides, the respondent  has even furnished its Banker,  Canara Bank™s letter  dated 02ndMarch, 2007 stating that the promoters of the respondent-company are  —well reputed individuals of very large means and are associated with us for more than three decades.˜ Though, it is the respondent™s case that the said letter has been issued to a CZECH law firm, yet on a perusal of the papers, I find that the said letter has, in fact,  been issued in accordance with  Clause 3.2 of the  Stock Purchase and Sale Agreement  dated 15thMarch, 2007 executed between the parties.  The relevant portion of Clause 3.2. is reproduced hereinbelow:-•3.2. Guarantees3.2.1. Corporate Guarantee. The Purchaser shall procure the irrevocable Corporate Guarantee issued by Co. Pet. 248/2009 the company SRM Exploration Private Limited., headquartered at D-146, Saket, New Delhi-110017, India in favour of the Seller for the aggregate amount of the Purchase Price, i.e. the amount of 230,000.000,-CZK (two hundred thirty million Czech Crowns) (hereinafter the •Corporate Guarantee–).  The Corporate Guarantee in the wording as enclosed as Schedule 3 of this Agreement will be issued before the Signing date and handed over to the Seller against the hand-over of the Shares of the Company as described in section 3.4 of this Article.3.2.2. Promissory Notes.    The Purchaser shall issue the Promissory Notes in the amounts of the particular instalments of the purchase price in order to the Seller provided with aval of the company SRM Exploration Private Limited, headquartered at D-146, Saket, New Delhi-110017, India.  The Promissory Notes will be deposited by into the deed-box at Komereni banka a.s., subsidiary Benesov and handed over to the Seller according to the terms of the Escrow Agreement concluded between the contracting Parties and JUDr. Miloslav JINdrich, notary acting as a trustee, provided the purchase price has not be paid by the Purchaser duly and in time.  The Escrow Agreement will be signed before the signature of the hand-over minutes according to the Sec.3.4. of this Article.–

15. Moreover Mr. Ravi Chilukuri who signed the GuarantyDeclaration and endorsed the promissory  notes on behalf of the respondent  is, in my opinion, authorized by the board resolution dated 2ndMarch, 2007 to sign deeds, documents, agreements and Co. Pet. 248/2009 contracts etc.    The certified copy of the board resolution  is issued under the signature of the director of the Respondent. The Board Resolution dated 2ndMarch, 2007, is reproduced hereinbelow:-•CERTIFIED TRUE COPY OF THE EXTRACT OF PROCEEDINGS OF THE BOARD MEETING HELD ON MARCH 2, 2007•Resolved that the consent of the Board be and is hereby accorded to Mr. Mohinder Verma and Mr. Ravi Chilukri to sign, verify, execute documents, applications, deeds, agreements, contracts etc. on behalf of the company.Resolved further that the Board hereby ratifies any action already taken by above persons in accordance with the resolution˜For S R M Exploration Private LimitedSd/-Director–

16. In any event, in view of the principle of internal management, respondent cannot take  the defence that  either  Mr.  Ravi Chilukuridid not have a power of attorney in his favour or that he wassingularly not authorised to execute the Promissory Note or the Guaranty Declaration did not bear the stamp/seal of respondent company.   In fact, these defences are clearly a moonshine and sham as till date no criminal proceedings have been initiated against Mr. Co. Pet. 248/2009  Ravi Chilukuri, even though if respondent™s version is to be believed, then Mr. Ravi Chilukuri has perpetrated not only a fraud of a gigantic proportion but also a major crime!

17. Also from the record, I find that after the  Purchaser haddefaulted in making payment under the installments,  the  petitioner has periodically sent letters/notices to the Purchaser.  In fact, the letter dated 17thSeptember, 2007 for payment of first installment, letter dated 2ndNovember, 2007 for payment of second installment, letter dated 02ndMay, 2008 for payment of third installment andletter dated 01stMay, 2009 for payment of fourth installment are on record.

18. The petitioner through its advocates also wrote  a letter dated 30thMay, 2008 to the respondent and intimated about the defaults committed by the Purchaser in the payment of installments.  The petitioner also reminded the respondent of its obligations under the Guaranty Declaration.

19. I also find that the petitioner through its lawyers also sent a letter dated 14thApril, 2009 demanding payment of unpaid installment amounting to CZK 215,375,000.  However, as the Co. Pet. 248/2009 respondent did not make the payment in terms of the GuarantyDeclaration, the petitioner, through its Advocates, issued a statutory winding up notice dated May 01, 2009 calling upon the respondent to make payment within three weeks.    Consequently, neither the winding up notice nor the present petition is premature.

20. If the said Guaranty Declaration has been executed by the respondent in breach of any provisions of FEMA or FERA, the respondent can be prosecuted for the same.  But, in my opinion, it cannot be said that the Guaranty is null, void or cannot be enforced on this ground.

21. I am further of the opinion that the Guaranty Declaration executed by the respondent is a contract enforceable under law.  It is not the case of the respondent that the Guaranty Declaration  is executed under coercion, undue influence, fraud and/or misrepresentation.  The other defence that the board resolution has been given without implication of financial liability is not substantiated by the wording of the board resolution.

22. I am also of the opinion that the objection raised to the maintainability of the petition is untenable in law.  In fact, this Court Co. Pet. 248/2009 in Ram Bahadur Thakur and Compay v. Sabu Jain Ltd., (1981) 51Comp. Cases 301(Delhi) has held as under:-•11.  The second contention of Sri Jain is that the provisions of Section 433(e) read with Section 434(1)(a) of the Companies Act have no application to the present case. He pointed out that the above provisions are attracted  only where there is a ” debt ” owed by the company to a creditor and the contention is that in the present case there was no ” debt ” owed by the company to the firm. According to him, no such debt could arise until the amount thereof is ascertained and a  decree, on the basis of the deed of guarantee, is obtained against the company¦¦¦12. Applying this test, it is clear that a •debt– from the company to the firm has come into existence in the present case.  Under the deed of guarantee, the company has undertaken an obligation to pay to the firm the amounts due to it by the mills.  But no •debt– came into existence merely on the execution of the deed of guarantee because it was not a present liability but a contingent liability. The liability of the company  to pay did not arise unless, (a) the mills defaulted in  making the payments as scheduled, and (b) there was a request/notice calling upon the company to pay the amounts due.  But the moment these contingencies happened, a present obligation arose resulting in the accrual of a •debt–¦¦¦xxx xxx xxx14. Sri Jain tried to contend in several ways that the debt in this case”if it was one-was not a clear and Co. Pet. 248/2009 undisputed debt.  He submitted that, in a contract of suretyship, it was always implied that the money would be sought to be recovered from the principal debtor and that the guarantor would come in only if the money cannot be recovered from the principal debtor¦¦xxx xxx xxx17. ¦..This amount as such has not been disputed either by the mills or the company.  Even assuming that there is some controversy regarding the actual amount, there can be no doubt that a debt is clearly due and a mere dispute regarding the actual amount cannot disentitle the petitioner to a winding-up order at least at the stage of admission.  Regarding the second point, I have already pointed out that the petitioner has alleged that it has sent repeatedly notices of demand to the mills and the company and that this allegation remains uncontroverter.  So far as the third point is concerned, it is well settled that mere forbearance on the part of the creditor to sue the principal debtor will not discharge the surety. In regard to this plea, Sri Bhatt referred to a term of the guarantee deed which is in the following terms:•Any  alteration of the terms of repayment or other consideration given by  the beneficiaries to the company shall not be considered to act in any manner prejudicial to the right or interest of the guarantors and this  guarantee shall have full force notwithstanding any such consideration or  alteration of the terms aforesaid.–18. This clause is no doubt of limited scope but it covers the present argument that the liabilities of the surety is discharged because of the •consideration Co. Pet. 248/2009 given– by the firm to the mills in the sense of the postponement of action by the firm against the mills.  According to the petitioner, the financial position of the mills is none too good and it will be impossible for them to proceed against the mills.  There can be no doubt that the firm is entitled to ignore the principal debtor and seek payment from the surety and it is not open to the surety to ask the firm to first exhaust his remedy against the firm and then come to him. These contentions are, therefore, untenable and are rejected.–

23. Consequently,  there is  no doubt that a debt is owed by the respondent to the petitioner and further the petitioner does not have to wait to obtain a decree from a Civil Court on the basis of the Guaranty Declaration.

24. Recently, the Supreme Court in  IBA Health (India) Private Ltd. v. INFO-DRIVE Systems SDN. BHD., (2010) 10 SCC 553 has held that if there is no dispute as to the company™s liability, the solvency of the company would not constitute a stand alone ground for setting aside a notice under Section 434 (1)(a) of the Companies Act, meaning thereby, if a debt is undisputedly owing,  then it has to be paid.  Consequently, I am of the opinion that respondent owes a debt to the petitioner which it has defaulted in paying.  Moreover, the defence set up by respondent is a moonshine and a sham.Co. Pet. 248/2009.

25. In view of the aforesaid, the petitioner™s application being CA 767/2009  is allowed.   The Liquidator attached to this Court is appointed as the Provisional Liquidator of the respondent company.  It  is further ordered that the respondent company and  its directors/officers are restrained from selling, parting with possession or creating third party rights in respect of its movable and immovable properties/assets till further orders.   Consequently, CA 1889/2010 filed by the respondent for dismissal of the present petition is dismissed.CP 248/200926. List for further hearing on 13thSeptember, 2011.  The Official Liquidator is directed to file a status report one week before the next date of hearing.

MARCH 04, 2011


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