State Bank of India & Ors v Mallya-[2020]EWHC 96(Ch)

Neutral Citation NumberNumber Αριθμός: [2020] EWHC 96 (Ch)Case No: BR-2018-001805

IN THE HIGH COURTHigh Court High Court Judges in England and Wales handle complex and tough cases, sitting in London and traveling to court centers around the country. They preside over serious criminal and important civil cases, and support the Lord and Lady Justices in hearing appeals. High Court Judges are commonly referred to as ‘Mr/Mrs/Ms Justice surname’ and are given the prefix ‘The Honourable’. They are assigned to the King’s Bench Division, the Family Division, or the Chancery Division. The King’s Bench Division focuses on civil wrongs and judicial review, the Family Division deals with family law, and the Chancery Division handles various cases including company law and probate. Judges are appointed through a rigorous process overseen by the Judicial Appointments Commission. OF JUSTICEJustice δικαιοσύνη > judicature ( δικαιοσύνη) > judge (δικαστής / κριτής). The whole purpose of Plato`s Republic is to search for Justice. The purpose of Justice is to establish a perfect State. The State of happiness (ευτυχία)

BUSINESS AND PROPERTY COURTS ENGLANDEngland 47 boroughs, 36 counties, 29 London boroughs, 12 cities and boroughs, 10 districts, 12 cities, 3 royal boroughs boroughs: Barnsley, Blackburn with Darwen, Blackpool, Bolton, Bournemouth, Bracknell Forest, Brighton and Hove, Bury, Calderdale, Darlington, Doncaster, Dudley, Gateshead, Halton, Hartlepool, Kirklees, Knowsley, Luton, Medway, Middlesbrough, Milton Keynes, North Tyneside, Oldham, Poole, Reading, Redcar and Cleveland, Rochdale, Rotherham, Sandwell, Sefton, Slough, Solihull, Southend-on-Sea, South Tyneside, St. Helens, Stockport, Stockton-on-Tees, Swindon, Tameside, Thurrock, Torbay, Trafford, Walsall, Warrington, Wigan, Wirral, Wolverhampton counties (or unitary authorities): Bedfordshire, Buckinghamshire, Cambridgeshire, Cheshire, Cornwall, Cumbria, Derbyshire, Devon, Dorset, Durham, East Sussex, Essex, Gloucestershire, Hampshire, Herefordshire, Hertfordshire, Isle of Wight, Kent, Lancashire, Leicestershire, Lincolnshire, Norfolk, North Yorkshire, Northamptonshire, Northumberland, Nottinghamshire, Oxfordshire, Shropshire, Somerset, Staffordshire, Suffolk, Surrey, Warwickshire, West Sussex, Wiltshire, Worcestershire AND WALES
INSOLVENCY AND COMPANIES LIST (Chd)
The Rolls Building 7 Fetter Lane London EC4A 1NL

Date: 09/04/2020

Before:

CHIEF INSOLVENCY AND COMPANIES COURT JUDGE BRIGGS

– – – – – – – – – – – – – – – – – – – – –

Between:

(1) STATE BANK OF INDIAIndia Hind/ hend >hindia. Bharat Varsha (Jambudvipa used in Mahavamsha) is the name of this land mass. The people of this land are Sanatan Dharmin and they always defeated invaders. Indra (10000 yrs) was the oldest deified King of this land. Manu's jurisprudence enlitened this land. Vedas have been the civilizational literature of this land. Guiding principles of this land are : सत्यं वद । धर्मं चर । स्वाध्यायान्मा प्रमदः । The place also been called Hindusthan in Pesia. The word Hendu is mentioned in Avesta. Read more

(2) BANK OF BARODA

(3) CORPORATIONCorporation A legally established entity that can enter into contracts, own assets and incur debt, as well as sue and be sued—all separately from its owner(s). The term covers both for-profit and nonprofit corporations and includes nonstock corporations, incorporated membership organizations, incorporated cooperatives, incorporated trade associations, professional corporations and, under certain circumstances, limited liability companies. BANK

(4) THE FEDERAL BANK LIMITED

(5) IDBI BANK LIMITED

(6) INDIANIndia Hind/ hend >hindia. Bharat Varsha (Jambudvipa used in Mahavamsha) is the name of this land mass. The people of this land are Sanatan Dharmin and they always defeated invaders. Indra (10000 yrs) was the oldest deified King of this land. Manu's jurisprudence enlitened this land. Vedas have been the civilizational literature of this land. Guiding principles of this land are : सत्यं वद । धर्मं चर । स्वाध्यायान्मा प्रमदः । The place also been called Hindusthan in Pesia. The word Hendu is mentioned in Avesta. Read more OVERSEAS BANK

(7) JAMMU & KASHMIR BANK LIMITED

(8) PUNJAB & SIND BANK

(9) PUNJAB NATIONAL BANK

(10) STATE BANK OF MYSORE

(11) UCO BANK

(12) UNITED BANK OF INDIA

(13) JM FINANCIAL ASSET

RECONSTRUCTION CO.PVT.LTD

Petitioners

– and –

DR VIJAY MALLYA

Respondent

– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

MARCIA SHEKERDEMIAN QC (instructed by TLT LLP) for the PETITIONERS

PHILIP MARSHALL QC AND JAMES MATHER (instructed by DWF LAW LLP ) for the

RESPONDENT

Hearing dates: 10 December 2019

CHIEF INSOLVENCY AND COMPANIES COURT JUDGE BRIGGS

Chief Insolvency and Companies Court Judge Briggs:

Introduction

1.  Dr Mallya is a well-known Indian businessman and former member of the Parliament of India, now living in the UKUK England has existed as a unified entity since the 10th century; the union between England and Wales, begun in 1284 with the Statute of Rhuddlan, was not formalized until 1536 with an Act of Union; in another Act of Union in 1707, England and Scotland agreed to permanently join as Great Britain; the legislative union of Great Britain and Ireland was implemented in 1801, with the adoption of the name the United Kingdom of Great Britain and Ireland; the Anglo-Irish treaty of 1921 formalized a partition of Ireland; six northern Irish counties remained part of the United Kingdom as Northern Ireland and the current name of the country, the United Kingdom of Great Britain and Northern Ireland, was adopted in 1927. See England pursuant to an indefinite leave to remain certificate. He has possessed the certificate since 1992. The petitioners seek to make Dr Mallya bankrupt. This is the first hearing of a bankruptcy petitionPetition αναφορά > παρακαλώ (Prayer).

2. The petition is based on a foreign judgmentJudgment The statement given by the Judge on the grounds of a decree or order - CPC 2(9). It contains a concise statement of the case, points for determination, the decision thereon, and the reasons for such decision - Order 20 Rule 4(2).  Section 354 of CrPC requires that every judgment shall contain points for determination, the decision thereon and the reasons for the decision. Indian Supreme Court Decisions > Law declared by Supreme Court to be binding on all courts (Art 141 Indian Constitution) Civil and judicial authorities to act in aid of the Supreme Court (Art 144) Supreme Court Network On Judiciary – Portal > Denning: “Judges do not speak, as do actors, to please. They do not speak, as do advocates, to persuade. They do not speak, as do historians, to recount the past. They speak to give Judgment. And in their judgments, you will find passages, which are worthy to rank with the greatest literature….” Law Points on Judgment Writing > The judge must write to provide an easy-to-understand analysis of the issues of law and fact which arise for decision. Judgments are primarily meant for those whose cases are decided by judges (State Bank of India and Another Vs Ajay Kumar Sood SC 2022) debt, registered in England under the Foreign Judgments (Reciprocal Enforcement) Act 1933. The registration of the judgment is not subject to an appeal. The judgment debt is £720,740,180.57. Due to interest accruing at a rate of 11.5% with yearly rests, the debt has increased to approximately £1.05 billionMillion 1,000,000 (one followed by six zeros), One billion (1,000,000,000) means a thousand million or one followed by nine zeros. A trillion (1,000,000,000,000). This figure takes account of recoveries already made.

3. The first twelve petitioners are state-owned Indian banks. The thirteenth is an asset restructuring company that purchased debt owed to other Indian banks. I shall describe them collectively as the “Banks”.

4. The judgment debt and subsequent order were made by the Debt Recovery Tribunal, Karnataka, Bangalore, India. The Debt Recovery Tribunal has been referred to through-out the hearing as the “DRT” as the judgment the “DRT judgment”.

5. Dr Mallya resists the making of a bankruptcy order. Two principal grounds for resistance are advanced: (i) the petitioners are secured creditors and there is a failure to state the security on the face of the petition (ii) there is a reasonable prospect that the DRT judgment will be compromised within a reasonable period of timeTime χρόνος. Judicial: Where any expression of it occurs in any Rules, or any judgment, order or direction, and whenever the doing or not doing of anything at a certain time of the day or night or during a certain part of the day or night has an effect in law, that time is, unless it is otherwise specifically stated, held to be standard time as used in a particular country or state. (In Physics, time and Space never exist actually-“quantum entanglement”) यमः , पुं, (यमयति नियमयति जीवानां फलाफलमिति । यम् + अच् । विश्वे च कलयत्येव यः सर्व्वायुश्च सन्ततम् । अतीव दुर्निवार्य्यञ्च तं कालं प्रणमाम्यहम् ॥यमैश्च नियमैश्चैव यः करोत्यात्मसंयमम् । स चादृष्ट्वा तु मां याति परं ब्रह्म सनातनम् ॥.

The background in brief

6. I deal with the background in brief as it has been dealt with in part in another judgment ([2018] EWHC 1084) where Dr Mallya and several companies he controls asked the court to (i) set aside the registration of the DRT judgment (see below) and (ii) set aside a freezing order. The overall context is that the petition debt is based on an unsatisfied demandDemand In economics, the amount of a good or service that consumers are willing to buy at a particular price. made pursuant to a personal guarantee (the “PG”) provided by Dr Mallya in respect of certain company loans. The companies were or are associated with Dr Mallya and detailed in a Master Debt Recast AgreementContract An agreement enforceable by law is a contract. All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Indian Contract Act. (“MDRA”) dated 21 December 2010. The MDRA consolidated existing liabilities of Kingfisher Airlines

Limited (“Kingfisher”) which had suffered financially due to the 2008 credit crunch. In addition to the PG provided by Dr Mallya, the Banks held a guarantee from another company owned and controlled by Dr Mallya namely, United Breweries (Holdings) Limited (“UBHL”).

7. In his first witness statement Dr Mallya explains that in March 2013 he challenged the validity of the PG. Less than a month later, on 2 April 2013, the Banks accelerated their loan facilities. They subsequently, on 19 January 2017, obtained judgment for the sums lent and not repaid by Kingfisher and UBHL. In addition judgment was entered against Dr Mallya on the PG. After the loans were accelerated and demands made, the Banks released a press report stating that: “[t]here was no fraud involved in the non-payment of loans and that it was simply a case of business failure”. His view is that “the Government of India is under pressure to take action in respect of loans owed to state owned banks. On 6 May 2016, India’s Ministry of Finance (IMFInternational Monetary Fund Bretton Woods Agreement (December 1945), Resource: Capital subscription 191 member countries. Business: international financial stability, Loans and other financial aid, Monitoring economic and financial developments. Operation: It operates its financial functions through three separate accounting entities: the General Department, the SDR Department, and the Administered Accounts. The financial functions of it are discharged by the Finance Department, an organizational unit of the staff. It has 15 other organizational units, as well as the Office of the Managing Director, four institutes, offices in Paris, Geneva, Tokyo, and the United Nations, and resident representatives in various member countries.) sent a letter to the Petitioners directing them to meet with the head of the Central Bureau of InvestigationInvestigation Purpose of all investigation is to reveal the unvarnished truth. The constitutional courts are duty bound to ensure that the truth is revealed. (the “CBI”) and the head of the Enforcement Directorate in Mumbai (the “ED”). The ED is a lawLaw νόμος:  Positive command of sovereign or divine. One can be ruled either by a Statute, a Statue, or a Statement. Legislation is the rule-making process by a political or religious organisation. Physics governs natural law. Logical thinking is a sign of a healthy brain function. Dharma is eternal for Sanatanis. Judiciary > Show me the face, and I will show you the law. Some people know how to bend the law rather than break it. Law Practice. Read a scholarly article enforcement agency that forms part of the Department of Revenue of IMF. Whilst the CBIs role is to investigate independently from political influence, I consider that there is a lack of independence of the CBI from government ministries and departments.”

8. That Dr Mallya perceives political interference is clear, but that is not a matterMatter Normal matter is made of molecules, which are themselves made of atoms. Inside the atoms, electrons are spinning around the nucleus. The nucleus is made of protons and neutrons. Inside the protons and neutrons, exist indivisible quarks, like the electrons. All matter around us is made of elementary particles. ( building blocks of matter > quarks and leptons). All stable matter in the universe is made from particles that belong to the first-generation. Fundamental forces result from the exchange of force-carrier particles, which belong to a broader group called “bosons”. The strong force is carried by the “gluon”, electromagnetic force is carried by the “photon.” for this court. His perception is partly based on what he claims to be inconsistent dealings he has experienced with the authorities. His position is that the CBI pressurised the Banks to make a complaint about him, Kingfisher and UBHL. The complaint made by the Banks appears to have been that Dr Mallya had “caus[ed] loss of Rs 6,027 croreCrore एक करोड़: It denotes ten million (₹ 10,000,000) and is equal to 100 lakh in the Indian numbering system. 100 crores = 1 billion (1000 million) to [the Banks] by not keeping repayment commitments of his loan taken during 2005-10”. The complaint is seemingly with a letter from the First Petitioner to the Reserve Bank of India dated 31 January 2012 in which it was stated that Kingfisher had “been making every effort to achieve satisfactory performance of its operations through infusion of substantial fundsFund The term refers to assets of every kind, whether corporeal or incorporeal, tangible or intangible, movable or immovable, however acquired, and legal documents or instruments in any form, including electronic or digital, evidencing title to, or interest in, such assets. and keep the airline as a going concern, despite facing severe constraints…” (sic).

9. On 26 June 2013 the Banks began proceedings in the DRT to enforce the covenants in the MDRA. A jurisdictional challenge was mounted and dismissed. An appeal was made against the dismissal but later withdrawn due to a change in the law. On 19 January 2017 the DRT gave judgment for the Banks which was followed by attachment orders in respect of shares in UBHL, said to be worth £385.9 millionMillion 1,000,000 (one followed by six zeros), One billion (1,000,000,000) means a thousand million or one followed by nine zeros. A trillion (1,000,000,000,000). There have been a number of appeals made by Dr Mallya, UBHL or Kingfisher but they have generally been thwarted by a failure to comply with procedure, namely appeals being made out of time or failing to comply with a condition. There have been appeals to the DRT appeal court and Karnataka High Court which have all been dismissed. A hearing in the Bombay High Court is pending which will determine a question of jurisdictionJurisdiction Authority by which courts receive and decide cases. Limited Jurisdiction: the authority over only particular types of cases, or cases under a prescribed amount in controversy, or seeking only certain types of relief, the District Court is a court of limited jurisdiction. Original Jurisdiction: Jurisdiction of the first court to hear a case.. There are other proceedings that are yet to be determined such as a challenge to the rate of interest, a settlement sanction petition in respect of UBHL and a special leave petitionSpecial Leave Petition A petition seeking grant of special leave to appeal may be rejected for several reasons. For example, it may be rejected (i) as barred by time, or (ii) being a defective presentation, (iii) the petitioner having no locus standi to file the petition, (iv) the conduct of the petitioner disentitling him to any indulgence by the Court, (iv) the question raised by the petitioner for consideration by this Court being not fit for consideration or deserving being dealt with by the Apex Court of the country and so on. filed with the Supreme Court.

10. On 24 November 2017 the DRT judgment was registered in England and Wales.

The attachment orders

11. In 2016 and 2017 the ED obtained attachment orders over assets of UBHL and personal assets of Dr Mallya. I turn to the DRT judgment. The presiding officer of the DRT was Shri. K. Srinvasan. Unless it is clearly stated or the context suggests otherwise, the passages I quote below are from his judgment. It should be noted that the judgment contains some linguistic imperfections.

12. The claimA Claim A claim is “factually unsustainable” where it could be said with confidence before trial that the factual basis for the claim is entirely without substance, which can be the case if it were clear beyond question that the facts pleaded are contradicted by all the documents or other material on which it is based. made by the Banks was that Kingfisher approached them for working capital and a term loan facility in 2005. A demand for repayment followed default that led to restructuring negotiations, the MDRA, the PG and a guarantee provided by UBHL “for repayment of the outstanding loans by [Kingfisher] to applicant banks…pursuant to the terms of the MDRA…a security Trustee Agreement dated 21.12.2010 was also entered into among the Applicants and Defendants No 1 and 5, by which Defendant 5 was appointed as security trustee for the benefit of the Applicant-Banks and, inter alia, to hold the security documentsDocument It means any matter expressed or described or otherwise recorded upon any substance by means of letters, figures or marks or any other means or by more than one of those means, intended to be used, or which may be used, for the purpose of recording that matter and includes electronic and digital records. (Bharatiya Sakshya Adhiniyam 2023) created by Defendant no 1 in favour of Defendant No 5 for the benefit of the applicant-banks.” Defendant No.1 is Kingfisher and Defendant No 5 is SBICAP Trustee Company Ltd. Kingfisher and UBHL also provided a pledge “pledging thereby certain shares owned by the Pledgors…” It is common ground that the pledged shares have been realised for the benefit of the Banks. The sixth defendant in the DRT was the Commissioner of Service Tax. Having dismissed many challenges made by the defendant to the DRT action Shri. K. Srinvasan considered an issue of security: “whether the sixth defendant has got first charge over the movable and immovable properties of defendants 1 to 3?” The answer is set out at page 92 of the judgment:

“The said claim of the sixth defendant cannot be accepted in view of section 31(b) of the RDDB & FI Act according to which the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created shall have priority and shall be paid in priority over all debts and government dues including revenues, taxes, cesses and rates due by them to the Central and State Government of any local authority. Further, even according to the 6th defendant, u/s 88 of Finance Act 1994, the claim of the sixth defendant will be subject to the banks claim. Hence, the claim of the sixth defendant for first charge over the charged assets of the defendants 1 to 3 is rejected and it is held that claim of the sixth defendant will be considered for distribution only as a second charge subject to the first charge of applicant banks being fully satisfied…”

13. The PG provided by Dr Mallya obliges him to produce a statement of personal assets and liabilities on an annual basis and restricts dealings with his personal assets so that

“transactions contemplated by, the Personal Guarantee do not and will not conflict: (i) with any Applicable Law; (ii) with the constitutional documents of the Personal Guarantor; or (iii) with any documentDocument It means any matter expressed or described or otherwise recorded upon any substance by means of letters, figures or marks or any other means or by more than one of those means, intended to be used, or which may be used, for the purpose of recording that matter and includes electronic and digital records. (Bharatiya Sakshya Adhiniyam 2023) which is binding upon the Personal Guarantor or on any of his assets; and (iv) will not result in the existence of, nor oblige to create, any encumbrance over all or any of his present or future revenues or assets.” The PG contains a clause stating that it will not result in the existence of an encumbrance over Dr Mallya’s “present or future revenues or assets” but also precludes him from dealing with his property. It obliges him not to “convey, sell, leaseLeasehold The leaseholder has no right or interest in the land, he pays rent to the landlord for using the flat or house. A lease is an agreement between the freeholder and the tenant. Commonhold is a form of ownership (or tenure) for multi-occupancy developments (flats of a building). Each unit-holder owns the freehold of their flat, and a commonhold or residents’ association owns and manages the common parts of the property., let or otherwise dispose (or agree to do any of the foregoing at any future time) all or any part of his property or assets without the prior written approval of the Lenders’ AgentAgent An agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the principal. Indian Contract Act and the Lenders.” The orders made by the DRT are set out at the end of the judgment. These include the following:

“In the event of failure of defendants to pay the said OA amount, the applicant bank is at liberty to sell the hypothecated/mortgaged movables/immovables properties described in schedules to the main petition according to law…the Applicant Banks are also at liberty to proceed against the person and properties of the defendants 1 to 4 in execution proceedings.”

14. Chapter VI, section 31B of the Recovery of Debts Due and Financial InstitutionsFinancial institutions It means any natural or legal person who conducts as a business one or more of the following activities or operations for or on behalf of a customer: 1. Acceptance of deposits and other repayable funds from the public. 2. Lending. 3. Financial leasing. 4. Money or value transfer services. 5. Issuing and managing means of payment (e.g. credit and debit cards, cheques, traveller's cheques, money orders and bankers' drafts, electronic money). 6. Financial guarantees and commitments. 7. Trading in: (a) money market instruments (cheques, bills, certificates of deposit, derivatives etc.); (b) foreign exchange; (c) exchange, interest rate and index instruments; (d) transferable securities; (e) commodity futures trading. 8. Participation in securities issues and the provision of financial services related to such issues. 9. Individual and collective portfolio management. 10. Safekeeping and administration of cash or liquid securities on behalf of other persons. 11. Otherwise investing, administering or managing funds or money on behalf of other persons. 12. Underwriting and placement of life insurance and other investment-related insurance[5]. 13. Money and currency changing. Act 1993 cited as authority for the proposition that the Banks have a first charge over the assets of Dr Mallya in the DRT judgment provides:

“Notwithstanding anything contained in any other law for the time being in force, the rights of secured creditors to realise secured debts due and payable to them by sale of assets over which security interest is created, shall have priority and shall be paid in priority over all other debts and Government dues including revenues, taxes…due to the Central Government, State Government or local authority”.

15. A secured creditor shall have the meaning assigned to it in section 2(1)(zf) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002. By section 2(1b) a security interest means “a mortgage, charge, assignment or any other right, title or interest of any kind whatsoever upon property, created in favour of any bank or financial institutionFinancial institutions It means any natural or legal person who conducts as a business one or more of the following activities or operations for or on behalf of a customer: 1. Acceptance of deposits and other repayable funds from the public. 2. Lending. 3. Financial leasing. 4. Money or value transfer services. 5. Issuing and managing means of payment (e.g. credit and debit cards, cheques, traveller's cheques, money orders and bankers' drafts, electronic money). 6. Financial guarantees and commitments. 7. Trading in: (a) money market instruments (cheques, bills, certificates of deposit, derivatives etc.); (b) foreign exchange; (c) exchange, interest rate and index instruments; (d) transferable securities; (e) commodity futures trading. 8. Participation in securities issues and the provision of financial services related to such issues. 9. Individual and collective portfolio management. 10. Safekeeping and administration of cash or liquid securities on behalf of other persons. 11. Otherwise investing, administering or managing funds or money on behalf of other persons. 12. Underwriting and placement of life insurance and other investment-related insurance[5]. 13. Money and currency changing.”. The definition states that secured creditor means “any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified…in whose favour security interest is created by any borrower for due repayment of any financial assistance”. The term ‘pledge’ is also defined as a security interest. It is not a far reach to conclude that having cited section 31B of “the RDDB & FI Act” Shri. K. Srinvasan would have (i) known the meaning of security (ii) known how security operates and (iii) applied section 31B to the facts of the case. There has been no appeal against this part of the decision by the Banks. In my judgment it is highly likely that Shri. K. Srinvasan was finding not only that the debt was due but that the Banks were secured and as a first charge have priority over other charges.

16. As a result of the Banks reporting a potential fraud provisional attachment orders were made pursuant to the Prevention of Money LaunderingMoney Laundering UN Vienna 1988 Convention: The conversion or transfer of property, knowing that such property is derived from any offense(s), for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in such offense(s) to evade the legal consequences of his actions (Read more) Act 2002 on an application of the Deputy Director of ED. The attachment orders are said to be “in respect of movable properties and immovable properties as detailed below”. The ‘detail below’ is contained in a schedule and provides a list of moveable and immovable properties which includes the pledge on shares and other assets of Dr Mallya, Kingfisher and UBHL. The initial adjudication was on 1 December 2016 and confirmation of the attachment orders was made on 22 February 2017. The Banks subsequently challenged the attachment orders and filed three applications for condonation of delayCondonation of Delay It is not mandatory that a written application be filed seeking condonation of delay and relief can be granted in that regard even upon an oral request, provided sufficient cause is shown for such delayBhagmal & Ors. v. Kunwar Lal & Ors. [2010] 12 SCC 159; Sesh Nath Singh & Anr. v. Baidyabati Sheoraphuli Co-operative Bank Ltd. & Anr[2021] 7 SCC 313; Esha Bhattacharjee v. Managing Committee of Raghunathpur Nafar Academy & Ors.[2013] 12 SCC 649 ( Liberal, pragmatic, justice-oriented, non-pedantic approach while dealing with an application for condonation of delay as Courts are not supposed to legalize injustice but are obliged to remove injustice). I am informed by counsel for Dr Mallya that the challenge application made by the Banks stated at paragraph 17 that they have “an interest in all the assets of Dr Vijay Mallya” by reason of the PG and the DRT judgment; and at paragraph 19 “the Applicants have an interest in the assets of Dr. Vijay Mallya by virtueVirtue Aristotelian model: Excess Mean Deficiency >Irascibility Gentleness Spiritlessness >Rashness Courage Cowardice>Shamelessness Modesty Diffidence>Profligacy Temperance Insensitiveness>Envy Righteous Indignation Malice>Greed Justice Loss>Prodigality Liberality Meanness>Boastfulness Honesty Self-deprecation>Flattery Friendliness Surliness>Subservience Dignity Stubborness>Luxuriousness Hardness Endurance>Vanity Greatness of Spirit Smallness of Spirit>Extravagance Magnificence Shabbiness> Rascality Prudence Simpleness. of the Personal Guarantee dated 21.12.2010, on which basis recoveries had already been made against certain of his assets”. This is strong evidenceEvidence All the means by which a matter of fact, the truth of which is submitted for investigation, is established or disproved. Bharatiya Sakshya (Second) Adhiniyam 2023 that the Banks knew or should have known that they held security.

17. On 10 October 2018 Justice Manmohan Singh as chairman of the Prevention of Money Laundering Appellate Tribunal, Delhi (“PMLAPMLA The Prevention of Money Laundering Act, 2002: It (धन शोधन निवारण अधिनियम) is a criminal law enacted to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering and for matters connected therewith or incidental thereto. ED has been given the responsibility to enforce the provisions of the Act.”), gave judgment in relation to the challenge application.

18. In his judgment Justice Singh set out the argumentArguments It is not quarreling. It can be divided into Deductive, inductive, and conductive > Functional includes include: “because”, “since”, “for”, and “as”; typical conclusion indicators include “therefore”, “thus”, “hence”, and “so”. पंच अवयव तर्कः प्रतिज्ञा हेतू उदाहरणम् निगमनम् अवयवाः > premises to conclusion or conclusion to premises to Proof something. Proof is a derivation of a conclusion from premises through a valid argument. of the Banks that they have prior rights over the moveable and immovable properties in respect of Dr Mallya, UBHL and Kingfisher pursuant to the contractual provisions in the PG, a corporate guarantee and by a final order dated 19 January 2017 (the DRT judgment). The first respondent to the applications was the Deputy Director of the ED, the second to fifth respondents were Kingfisher, Dr Mallya, UBHL and Kingfisher Finvest India Ltd. The application for condonation of delay related to a delay of 562 days and the judgment of Justice Singh sets out the relevant part of the application:

“4. It is further submitted the Impugned OrderImpugned order Order under challenge was passed by the Adjudicating Authority inter alia confirming the Provisional Attachment Order dated 03.09.2016 passed by the Respondent No.1 in the criminal case bearing ECIR No. ECIR/07/MBZO/2016 inter alia attaching movable and immovable properties of the Respondent Nos. 2 to 5 are bad in law as the Appellants have prior right over the moveable and immovable properties of the Respondent Nos. 2 to 5 pursuant to the Personal Guarantee dated 21.12.2010, the Corporate Guarantee dated 21.12.2010 and the Final Order passed by the DRT on 19.01.2017 in O.A. No 766/2013 inter alia holding that the Respondent Nos 2 to 5 are jointly and severally liable to pay the OA amount and consequently by the Recovery Certificate in favour of the Appellants.”

19. At paragraph 10 of the Judgment:

“I have gone through the application filed by the appellants for condonation of delay. This Tribunal is of the considered opinionOpinion A judge's written explanation of a decision of the court. In an appeal, multiple opinions may be written. The court’s ruling comes from a majority of judges and forms the majority opinion. A dissenting opinion disagrees with the majority because of the reasoning and/or the principles of law on which the decision is based. A concurring opinion agrees with the end result of the court but offers further comment possibly because they disagree with how the court reached its conclusion. that as a matter of factFact Something तथ्य (In-formation) that truly exists or happens or some-thing that has actual existence. Circumstances: a fact or event that makes a situation the way it is. Indian Evidence Act: It means and includes— (i) anything, state of things, or relation of things, capable of being perceived by the senses; (ii) any mental condition of which any person is conscious. “facts in issue” means and includes any fact from which, either by itself or in connection with other facts, the existence, non-existence, nature or extent of any right, liability or disability, asserted or denied in any suit or proceeding, necessarily follows., ED has failed to perform his duty not to implead the appellants (lenders) banks despite having full knowledgeKnowledge Knowledge is derived from the process of an informed person integrating data from sense organs or intuition into their psyche. This concept is explored in the Vedic Nasadiya Sukta, which questions the possibility of ultimate truth or knowledge. In different languages, such as Greek, Latin, Sanskrit, and Chinese, knowledge is expressed as "η γνώση," "Scientia," "ज्ञानम्‌ ," and "知识 Zhīshì," respectively. that the loan amounts have to be returned by Vijay Mallya and his associate company to the banks who are the mortgagees of the attached properties. One is failed to understand why have not done so when they were full aware. Thus, the prayerPraying It can be interpreted as a political idea. It implicitly assumes the existence of the powerful and the powerless, with an intermediate agency positioned between them. This agency, often unquestioned and abstract, functions to preserve the existing balance between power and poverty. In doing so, prayer operates as a mechanism that normalizes hierarchy, encourages acceptance over challenge, and sustains the status quo without requiring conscious awareness from those who participate in it. made in the application for condonation of delay is liable to be allowed as the sufficient cause has been shown…” (emphasis supplied)

20. Having dealt with the condonation application Justice Singh explained (paragraphs 20 and 21):

“Earlier, the State Bank of India and other banks have appreciated the investigation of the ED and were also satisfied with the Provisional Attachment Order passed by the ED and the confirmation order. Once the State Bank of India and other banks have come to the notice that the ED may not agree to dispose of the properties by the banks (in view of the decree passed) till the completion of trial under Section 5(5) of the Act, the banks have decided to challenge the impugned order before this

Tribunal…Therefore, it appears that in the present appeal, the banks are seeking the interim orderInterim order Once an interim order is passed in a suit or a proceeding, the interim relief granted to the party seeking interim relief could either be confirmed or vacated at the time of final disposal of the suit or proceedings, as the case may be. If the disposal is by way of an order of dismissal, interim relief which is granted as an aid of or ancillary to the final relief cannot continue beyond termination of such suit or proceedings. This is the position of law flowing from the decision in State of Orissa v. Madan Gopal Rungta ( [1952] 1 SCR 28 : (1951) SCC 1024). Admittedly, the trial may take a number of years in view of the nature of the case and bulky records. The banks are the secured creditors against the unpaid loans by the Vijay Mallya and his associate companies.” (emphasis supplied).

21. This is further evidence to support the view that the Banks knew or should have known of the security.

22. Justice Singh recited section 31B of the Recovery Debts Due to Banks and Financial Institutions Act 1993 noting that it came into effect on 1 September 2016, and commented (paragraph 24) that the Banks “are admittedly secured creditors who have obtained decree against the borrowers who have provided security” and explained the effect of the section (paragraph 25) in the following way:

“The amendment prima facie gives the Secured Creditor, a priority over the rights of Central or State Government or any other Local Authority. It is evident that the amendment has been introduced to facilitate the rights of the Secured Creditors which are being hampered by way of attachments of properties belonging to the Financial Institutions/Secured Creditors, done by/in favour of the Government institutions.”

23. The Tribunal cited The Assistant Commissioner (CT), Anna Salai- III Assessment Circle vs. The Indian Overseas Bank and Ors MANU/TN/3743/2016 for the proposition that section 31B of the Recovery of Debts Due and Financial Institutions Act 1993 had the effect of giving priority to the Banks’ security over Government dues and “the law having now come into force, naturally it would govern the rights of the parties in respect of even a lis pending.”

24. The Tribunal found that “in view of settled law on the subject, I am of the opinion the appellant Bank is the rightful claimant who have already obtained decree against the borrower from DRT” and (at paragraph 34):

“The Respondent No 1 is not having any lien over the said properties as the Appellant banks are now the Legal Transferee of said properties”.

25. The Justice explained that the ED did not have title over the identified property, that the Banks are entitled to dispose of the properties if they chose and “have priority rights on assets of the secured creditors to recover the loan amount/debts by sale of assets over which security interest in created.” And at paragraph 38 of the judgment the Justice said:

“In view of facts and nature of the present case, I am of the opinion that once the banks are secured creditors and have obtained the final decree from the court which has attained finality, the banks are bound to receive the default loan amount from Vijay Mallya and his companies. He was/is active person of the companies. The loans amount has to be paid by the borrowers. It is a banks moneyMoney Χρήματα, νόμισμα (currency), Old French monoie, Pecunia, Money supply, Reserve money, Monetary System, Money-laundering, Electronic Money, Money Transfer, Promissory notes. Coin of Alexander (330 B.C.E). Dematerialized form is Paper Currency( In USA 1600 CE and in 1861 in India). Money makes men. Balance of Payments, Net borrowing. Euro, Dollar, INR.. It must come to the banks…”

26. The result of the challenge application in the High Court of Karnataka is that the Banks succeeded in demonstrating that the contractual nature of the PG made them secured creditors over certain assets of Dr Mallya, and the security had priority over any security obtained by the ED by reason of the attachment orders and interim orders were made. The terminology used suggests that the Justice was making interim findings but there can be little doubt that the Banks were asserting rights over property as secured creditors.

27. Two issues arise. First, can an English court take account of the Indian security said to exist over the Indian assets of Dr Mallya? This leads to the issue of security for the purpose of section 269 of the Insolvency Act 1986 (“IA 1986”). Secondly, if there is security for the purpose of section 269 IA 1986, should discretion be exercised to permit an amendment or dismiss the petition?

Security for the purpose of section 269 Insolvency Act 1986

28. A creditor may hold security but for the purpose of a creditor’s petition, the petition must contain a statement that the creditor is willing in the event of a bankruptcy order to give up the security or that the petition is not made in respect of any secured part of the debt.

29. In correspondence solicitors acting for Dr Mallya wrote seeking agreement that expert evidence be adduced in respect of the Indian Court System, the matters adjudicated upon in the Indian Courts and settlement offers made. Solicitors acting for the Banks responded that these matters were not suitable for expert evidence. Accordingly, no expert evidence was adduced in respect of the judgments provided by the Indian Courts and in particular whether the decision that the Banks held security in the DRT is security for the purpose of section 269 of the Insolvency Act 1986. The present state of affairs is that this court has the benefit of the DRT judgment registered in

England and Wales, under the Foreign Judgments (Reciprocal Enforcement) Act 1933 (the “1933 Act”).

30. It is not contested that section 2 of the 1933 Act provides that “a registered judgment shall, for the purposes of execution, be of the same force and effect…as if the judgment had been a judgment originally given in the registering court and entered on the date of registration”.

31. I agree with Mr Marshall that, the DRT judgment is of a competent court that found the PG gave rise to the “consequences prescribed by Indian statuteStatute A formal written legal enactment by a sovereign law-making body (Νόμος) > National Constitutions  > National Laws >  Indian Laws under section 31B of the Recovery of Debts Due to Banks and Financial Institutions Act 1993 (as inserted by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions Act 2016) (“Section 31B”), namely that the rights of secured creditors to ‘realise secured debts due and payable to them by sale of assets over which security interest is created’ take priority over all other debts and government dues and that this is ‘notwithstanding anything contained in any other law’.” The fact of security is reinforced by the findings in the PMLA. Ms Shekerdemian argues that as the DRT judgment is against other parties as well as Dr Mallya “this is not security”. She argues that the judgment merely gives rise to a right to enforce.

32. In my judgment the analysis given by the DRT and Justice Singh goes further than that contended by Ms Shekerdemian. This is not just a question of enforcement. The Banks are entitled to enforce the order made by the DRT over Dr Mallya’s property rights.

33. In my judgment the term “security” is used by the Indian Courts in a particular manner. It gives rise to a specific form of encumbrance over the property rights of Dr Mallya. It is specific as it gives the Banks priority in the business of collecting-in proceeds from the sale (enforcement) of specified property owned by Dr Mallya. The ability to make a claimA Claim A claim is “factually unsustainable” where it could be said with confidence before trial that the factual basis for the claim is entirely without substance, which can be the case if it were clear beyond question that the facts pleaded are contradicted by all the documents or other material on which it is based. on the proceeds enables the Banks to receive payment ahead of Dr Mallya and all other creditors. Another way of putting it is that the security interest found to exist, provides the creditor Banks with a right to secure payment of the sums said to be due. The rights also secure Dr Mallya’s contractual obligations under the PG. The security interest does not purport to transfer outright any interest in Dr Mallya’s property (which is not necessary for security) but restricts his right to dispose of specific assets free from the security interest. The security provisions are defined by Indian statute and the term “security” in English law is “no wider than the ordinary meaning of the wordWord Λόγος ”: Bristol Airport Plc v Powdrill [1990] 1 Ch 744, 760. In that case Sir Nicolas Browne-Wilkinson V-C accepted a submission from Mr Crystal (at page 760) that security is created where in addition to a personal promise from the debtor a creditor obtains “rights exercisable against some property in which the debtor has an interest in order to enforce the discharge of the debtor’s obligation to the creditor.” The submission of Mr Crystal accepted by Sir Nicolas BrowneWilkinson, is not challenged in this court. It follows that it matters not that the Banks have security rights over property belonging to other parties. The issue is whether the Banks hold security over (some or all of the) property rights of Dr Mallya.

34. The conclusiveness of a foreign judgment is dealt with in Rule 48 of Dicey, Morris & Collins on the Conflict of LawsConflict of laws A conflict of laws occurs when a case has a connection to two or more jurisdictions with different applicable laws. Preclusion may consist of res judicata (claim preclusion) or collateral estoppel (issue preclusion). Res judicata prevents claims that have been litigated or could have been litigated from being litigated again, while collateral estoppel prevents issues that have been litigated from being litigated again. (15th Ed) at 14R-118 which provides:

“A foreign judgment which is final and conclusive on the meritsMerits Strict legal rights of the parties; a decision “on the merits” is one that reaches the right(s) of a party as distinguished from a disposition of the case on a ground not reaching the rights raised in the action; for example, in a criminal case double jeopardy does not apply if charges are nolle prossed before trial commences, and in a civil action res judicata does not apply if a previous action was dismissed on a preliminary motion raising a technicality such as improper service of process. and not impeachable under any of Rules 49 to 52 is conclusive as to any matter thereby adjudicated upon, and cannot be impeached for any error either of fact or law.”

35. The authors of Dicey state that Rule 48 has never been questioned and that the Rule is consistent with the maxims interest reipublicae ut sit finis litium and nemo debet bis vexari pro eadem causa. They explain that Rule 48 “holds good whether the judgment is relied upon by the claimant or defendant” whether in rem or in personam. Of consequence Rule 48 “precludes a party from denying any matter of fact or law necessarily decided in the earlier judgment”. In my judgment the DRT judgment (i) is a final judgment on the merits (it is not argued otherwise) (ii) is a judgment of a foreign court of competent jurisdiction (it is not argued otherwise) (iii) where the parties are clearly identified and (iv) is a judgment that concerns the subject matter or issues (namely security) that are argued before the court at this bankruptcy hearing. Accordingly Rule 48 applies: Carl Zeiss Stiftung v Rayner & Keeler Ltd (No. 2) [1967] 1 A.C. 853; The Sennar (No 2) [1985] 1 WLR 490.

36. It follows, in my judgment, that the Banks are in breach of section 269 of the Insolvency Act 1986 (the “IA 1986”) and Rule 10.9 of the Insolvency Rules 1986 (the “Rules”) as they have failed to disclose their security over the assets of Dr Mallya.

37. It is argued that the failure should lead to dismissal. Cited in support of the argument is Barclays Bank Plc v Mogg [2004] BPIR 259 where David Richard J (as he was) considered the consequences of a failure by a secured creditor to comply with the requirements of section 269 of the Insolvency Act 1986. He found [17]:

“The importance of compliance with s269 of the 1986 Act does not, however, lead to the automatic conclusion that a bankruptcy petition which fails to comply must be dismissed and cannot be cured by amendment. Neither the language of the section nor the underlying principles compel that result.”

38. The judge considered the equivalent provision in the Bankruptcy Act 1914 and agreed with the approach suggested by the authors of Muir Hunter on Personal Insolvency (Sweet & Maxwell), para 3-337. In appropriate cases the court should allow an amendment rather than dismiss the petition. The editors of Insolvency Legislation Annotations and Commentary (LexisNexis), (8th Ed) comment:

“[I]n Wave Lending Ltd v Parmar [2017] EWHC 681, [2019] BPIR 451, where Mr Martin Griffiths (sitting as a deputy High Court judge) allowed appeals from bankruptcy orders where the petitions had failed to comply with either of the limbs in s 269(1). It is submitted that the difference in outcome may be accounted for by the fact that the petitioner in Mogg appears to have included the correct gross figure for the debt but omitted to mention the security, whereas in Parmar the petition included only an estimated net balance, accompanied by a statement that no security was held, without reference either to the gross figure or the security, or any acknowledgment that the figure was a net figure.”

39. In fact the deputy High Court Judge in Parmar did not dismiss the petition but concluded with the observation that the parties had agreed “the existing bankruptcy orders should be discharged and the petitions should be remitted to the County Court so that any applications to amend may be determined”. In my judgment neither Mogg nor Parmar is authority for the proposition that a petition should be dismissed if it fails to comply with the provisions of the IA 1986. It may be otherwise if the petition cannot be cured by amendment.

40. In my judgment where there is a breach of section 269 of the IA the court should take account of at least the following factors when exercising its discretion: (i) the consequence of the breach (ii) the conduct of the parties and (iii) all the circumstances of the case. It may be argued that the identified breach is deliberate, and the petition should be dismissed. In this case the Banks knowKnowledge Knowledge is derived from the process of an informed person integrating data from sense organs or intuition into their psyche. This concept is explored in the Vedic Nasadiya Sukta, which questions the possibility of ultimate truth or knowledge. In different languages, such as Greek, Latin, Sanskrit, and Chinese, knowledge is expressed as "η γνώση," "Scientia," "ज्ञानम्‌ ," and "知识 Zhīshì," respectively. they have security over the specified assets of Dr Mallya.

41. The submissions of Ms Shekedemian lead me to conclude that although the Banks knew or should have known of their status as secured creditors due to (i) their participation in the Indian proceedings (ii) specifically by reason of the argumentsArguments It is not quarreling. It can be divided into Deductive, inductive, and conductive > Functional includes include: “because”, “since”, “for”, and “as”; typical conclusion indicators include “therefore”, “thus”, “hence”, and “so”. पंच अवयव तर्कः प्रतिज्ञा हेतू उदाहरणम् निगमनम् अवयवाः > premises to conclusion or conclusion to premises to Proof something. Proof is a derivation of a conclusion from premises through a valid argument. they advanced in those proceedings, their legal advisers had doubt that the security said to exist by the foreign court is security for the purpose of section 269 of the IA 1986. Taking account of the contentious background to this matter and the Indian proceedings, a cautious approach would have been to make a statement in accordance with section 269(1)(a) or section 269(1)(b) of the IA 1986.

42. In my judgment a bankruptcy order should not ordinarily be made where the petition is defective as a result of such a breach.

43. It is accepted that the security obtained by the Banks over the assets of Dr Mallya, does not secure the entire judgment debt. It may be argued that the security provided is over the entirety of his assets, but recent evidence undermines the argument as Dr Mallya has assets in the UK that are not subject to security held by the Banks.

44. In my judgment the following factors weigh in favour of adjourning the petition rather than dismissal. First, the assets secured are not, or at the very least based on recent evidence, are unlikely to represent the entirety of Dr Mallya’s assets. Secondly the security over the assets of Dr Mallya have a value which is significantly less or at least less than the judgment debt. Thirdly although there is good evidence to support an inference of abuse (deliberately failing to disclose the security) there is also good reason to reach the opposite conclusion. The petition could have proceeded due to the size of the judgment debt measured against the value of security held. Fourthly, the petition is capable of cure. Lastly any prejudice suffered as a result of a failure to state the security in accordance with section 269 IA 1986 is limited. There are no opposing creditors. The judgment creditors are not claiming to have suffered prejudice as a result of the breach. Any prejudice suffered by Dr Mallya may be compensated by an appropriate cost order and an adjournment.

Settlement offers

45. Dr Mallya has petitioned the Supreme Court of IndiaArticle 124 of the Constitution of India Constitution of India > 124. Supreme Court (1) There shall be a Supreme Court of India consisting of a Chief Justice of India and, until Parliament by law prescribes a larger number, of not more than seven other Judges. (2) Every Judge of the Supreme Court shall be appointed by the President by warrant under his hand and seal and shall hold office until he attains the age of sixty-five years: Provided that-- (a) a Judge may, by writing under his hand addressed to the President, resign his office (b) a Judge may be removed from his office in the manner provided in clause (4). (2A) The age of a Judge of the Supreme Court shall be determined by such authority and in such manner as Parliament may by law provide. (3) A person shall not be qualified for appointment as a Judge of the Supreme Court unless he is a citizen of India and-- (a) has been for at least five years a Judge of a High Court or of two or more such Courts in succession; or (b) has been for at least ten years an advocate of a High Court or of two or more such courts in succession; or (c) is, in the opinion of the President, a distinguished jurist. (4) A Judge of the Supreme Court shall not be removed from his office except by an order of the President passed after an address by each House of Parliament supported by a majority of the total membership of that House and by a majority of not less than two-third of the members of the House present and voting has been presented to the President in the same session for such removal on the ground of proved misbehavior or incapacity. (5) Parliament may by law regulate the procedure for the presentation of an address and for the investigation and proof of the misbehavior or incapacity of a Judge under clause (4): (6) Every person appointed to be a Judge of the Supreme Court shall, before he enters upon his office, make and subscribe before the President, or some person appointed in that behalf by him, an oath or affirmation according to the form set out for the purpose in the Third Schedule. (7) No person who has held office as a Judge of the Supreme Court shall plead or act in any court or before any authority within the territory of India. seeking a court sanctioned settlement with creditors of UBHL. If the Supreme CourtSupreme Court The Court of last resort. Supreme Court of India (26/01/1950), Supreme Court of the United States (1798), Supreme Court of UK (1/10/2009), Supreme Court of Canada (1949), International Court of Justice (22/05/1947), > Supreme Court Network were to accede to the petition two consequences flow. First, he would be under no personal liability as the DRT judgment debt would be compromised. Secondly, the settlement would be supervised by the Indian courts as a collective procedure.

46. In respect of the first petition there has been a delay due to a procedural failure. The second petition is the subject of expert evidence given by Justice Verma in a report dated 4 December 2019. Justice Verma is a retired Judge of the Indian Supreme Court. In his opinion the Supreme Court should determine the petition within four months. He explains the procedure and the effect of a court sanctioned settlement. In particular there is no requirement for the creditors of UBHL or Dr Mallya to consentConsent Dr. Dhruvaram Murlidhar Sonar v. State of Maharashtra [2018] 13 SCR 920 : (2019) 18 SCC 191; Pramod Suryabhan Pawar v. State of Maharashtra [2019] 11 SCR 423 : (2019) 9 SCC 608.Shiv Pratap Singh Rana v. State of Madhya Pradesh & Anr [2024] 7 S.C.R. 8. Doing Sex: involves an active understanding of the circumstances, actions and consequences of the proposed act. An individual who makes a reasoned choice to act after evaluating various alternative actions (or inaction) as well as the various possible consequences flowing from such action (or inaction), consents to such action. to the settlement terms. If the Supreme Court sanctions the settlement agreement it will bind the creditors regardless of consent. Although the process will be more straightforward and quicker if the Banks were to agree.

47. In his evidence Dr Mallya states that some of the debts from supporting creditors are disputed. He claims, although I have not seen the evidence to support the claim, that there are sufficient assets to meet the DRT judgment. The Banks say otherwise.

48. Justice Verma can “see no legal infirmity with Dr Mallya’s offer”. The fact of the attachment orders does not undermine the settlement proposals. He explains that the powers of the Supreme Court are wide as the Constitution of IndiaConstitution of India भारतस्य संविधानम्: 1950 ∫ वयं भारतस्य जनाः (3) मौलिक अधिकार: (Fundamental Rights) > (4) राजनैतिकनीतेः निर्देशात्मकसिद्धान्ताः (Directive principles)> (5) The Union > (6) The States> (11) संघस्य च सम्बन्धाः राज्यम् (Union-State Relation)> (15) निर्वाचनम् (Elections)> (17) राजभाषा (Official Language) (18) आपत्कालीन प्रावधानम् (Emergency provisions) (20) संविधानसंशोधनम् (Amendment of Constitution). सप्तमी अनुसूची: (Seventh Schedule). Parliament, Supreme Court, President of India, Prime Minister of India. ∑ (Govt of India Act 1935, Manu Samhita 5000, BCE Rigveda 7000 BCE) provides it with a powerPower The amount of energy transferred or converted per unit of time. In the International System of Units, the unit of it is the watt, equal to one joule per second. The capacity of energy infrastructure is rated using watts, which indicate its potential to supply or consume energy in a given period of time. A Power-plant rated at 100 MW has the potential to produce 100 MWh if it operates for one hour. “to pass such decree or make such order as is necessary for doing complete justice in any cause or matter pending before it, and any decree so passed or order so made shall be enforceable throughout the territory of India…”. As regards the liability under the PG, Justice Verma concludes that there “is a reasonable prospect of the Supreme Court of India passing an appropriate order in respect of the release sought”.

49. The evidence of Justice Verma leads me to conclude that the prospect of a court sanctioned compromise is more than just fanciful. It would be highly unusual in this jurisdiction for a company in liquidation to be able to conduct negotiations to settle its debts. It has not been argued that it is equally unusual in India. Yet Karnataka High Court has made an order, in April 2017, staying the winding up of UBHL for the purpose of allowing settlement negotiations and proceedings to continue and be conducted by its management officers. Dr Mallya explains in his written evidence that the settlement offer provides that the assets of UBHL be sold and proceeds deposited with the High Court. His evidence is that in addition to assets of UBHL other companies owned and controlled by family members will also be sold and made available to the Banks.

50. I agree with the submission of Dr Mallya, that when the settlement proposals are analysed, as long as they have substance, it is difficult to see what reasonable basis the Banks may have for rejecting the offers. In the teeth of this evidence the Banks argue that (i) some of the assets are secured or pledged to third parties, and (ii) there can be no certainty that they will have their debts settled within a reasonable period of time. The pledge of assets to third parties was not advanced with any vigour at this hearing. Dr Mallya has explained that the purported pledge is challenged. In my judgment a reasonable period of time is dependent upon the context. I turn to the applicable principles.

Adjournment- applicable principles

51. There is agreement that the court has a discretion to exercise at the hearing of a bankruptcy petition. The discretion is provided by section 266(3) of the Insolvency Act 1986 which provides:

“The Court has a general power, if it appears to it appropriate to do so on the grounds that there has been a contravention of the rules or for any other reason, to dismiss a bankruptcy petition or to stay proceedings on such a petition; and where it stays proceedings on a petition, it may do so on such terms and conditions as it thinks fit.”

52. The discretion has long been available. The first statute that formalised the discretion was the Bankruptcy Act 1914. Section 5(3) of the 1914 Act gave discretion to dismiss a petition where the Court was not satisfied that there had been an act of bankruptcy or not satisfied as to proper service. Judicial consideration of the discretion introduced by section 5(3) of the 1914 Act shows that there were few limits other than it had to be exercised judicially. In Re A Debtor [1920] KB 432 McCardie J (sitting as part of a two-man Court) said that a judge appears to “possess the widest discretion in respect of granting adjournments” and that the limits imposed on the judge are that he “should exercise a judicial discretion”. Mr. Justice Peter Smith said that the discretion remained “quite unfettered”: Re Micklethwait [2003] BPIR 101, 102. There is some doubt whether it is completely unfettered but Mr. Justice Peter Smith was merely explaining that the discretion was wide. In Re A Debtor [1920] KB 432 the Court identified at least three circumstances where an adjournment may be sought. First to remedy technicalities; secondly “to enable the evidence on either side to be fully heard and thirdly to enable the debtor in the event of his being able to do so, to satisfy [the Court] of his power to pay his or her debts in full.”

53. The Court’s discretion provided by section 266(3) of the Insolvency Act 1986 is supplemented by the Insolvency Rules 2016. Rule 10.24 provides that the Court “may make a bankruptcy order if satisfied that the statements in the petition are true and that the debt on which it is founded has not been paid, or secured or compounded for”. Whether or not the petition debt could be paid within a reasonable time was the subject of an appeal to Henderson J (as he was) in Ross & Holmes v HMRC [2010] BPIR 652:

“[72] I come finally to the question of discretion, and whether the Chief Registrar should have granted a further adjournment. There is no doubt that the Court retains a discretion not to make a bankruptcy order, even where the petition debt has been clearly established and any grounds of opposition have been dismissed. However, the authorities establish that in such circumstances the discretion to adjourn should only be exercised if there is a reasonable prospect of the petition debt being paid in full within a reasonable period: see Harrison v Seggar [2005] EWHC 411 (Ch), [2005] BPIR 583, at para [7] per Blackburne J, and Re Gilmartin (A Bankrupt) [1989] 1 WLR 513, at 516F–G, per Harman J. Furthermore, as Blackburne J said, “[t]here must be credible evidence to support such a prospect if the Court is to grant an adjournment for payment”.

[73] Accordingly, the first question is whether there was credible evidence before the Chief Registrar on 20 July to establish a reasonable prospect that the petition debts would be paid in full within a reasonable time. In my judgment there was not. In the context of the long-drawn out history of the petitions, and the adjournments which had already been granted, it seems to me that a reasonable time for payment in full of the petition debts could have been no more than a further 2 or 3 months at the most. There was no credible prospect of payment being received within such a timescale, because the offer of security contemplated that nothing would probably happen for at least 6 months, and the terminal loss claims were still inchoate and unsupported by any draft accountsAccounting It is the process of recording, summarizing, analyzing, and reporting financial transactions of a business or individual. Types of Accounts > Assets- Things you own (cash, property) Liabilities- Things you owe (loans, bills) Equity- Owner’s stake in the business Revenue- Money you earn (sales, services) Expenses- Costs to run the business . In view of the past history of delay and broken promises, it was in my judgment appropriate to take a fairly hard line and to accord priority to HMRC’s undoubted prima facie right to obtain bankruptcy orders over protestations that a further adjournment might finally yield the payment in full which had so signally failed to materialise in the past. Furthermore, the Court would in my opinion have been justified in harbouring a suspicion that the predominant purpose of the adjournment, from the debtors’ point of view, was to enable them to realise their assets at a time of their choosing in a difficult property market.”

54. It is notable that the Judge was not taken to Re A Debtor (supra), but the judgment can be easily distinguished from the present situation. There was a “long-drawn out history of the petitions, and the adjournments” but even so a further 2 to 3 months would have been appropriate but for the fact that “There was no credible prospect of payment being received within such a timescale.”

Application of principle

55. This bankruptcy petition is by any measure extraordinary. The Banks are pressing for a bankruptcy order at a time when there is extant proceedings in India such as a challenge to the PG, a challenge to the high rate of interest accruing on the debts, and the Karnataka High Court is seized of compromise proposals presented by UBHL. In addition, a petition has been presented to the Supreme Court to sanction a binding compromise. There is no obvious advantage to the Banks to pursue this class action at this point in time. First, a bankruptcy order may put at risk a compromise that may see the Banks paid in full from the assets of UBHL and assets made available from outside the liquidation estate (I accept that is disputed). Secondly assets with a current market value of approximately 14,875 crores (£1.6 billion) “have been attached [secured] and/or seized under the orders of various courts, tribunals or authorities, including the Petitioners and the ED…”

56. In my judgment the following factors weigh heavily in favour of an adjournment for a period of time sufficient to permit the petitions to the Supreme Court, and the settlement proposal before the Karnataka High Court to be determined. First, apart from the high rate of interest, Dr Mallya is not contesting that UBHL owes substantial money to the Banks. He does contest the validity of the PG. The PG contest is yet to be finally determined. Secondly, although the petition to the Supreme Court and proposal before the Karnataka High Court are not guaranteed to succeed, they are genuine. The evidence supports the view that the petitions stand a reasonable prospect of success. Thirdly, if Dr Mallay is right in his contention that the proposal before the Karnataka High Court, if sanctioned, is likely to see the UBHL debt paid in full, there will be no liability under the PG. Fourthly, if the Supreme Court were to accede to the compromise petition, the Bank will be bound. Lastly, if the Banks decide to continue with the petition they are required to amend.

57. Finally, I record that although an argument of abuse, in the sense that the bankruptcy proceedings are prosecuted for a collateral purpose, was raised in written submissions, Dr Mallya preferred to preserve the argument for another occasion. I make no decision on the issue.

Conclusions

58. In my judgment the Banks are secured, at least in part. The petition fails to comply with section 269 of the IA 1986. A bankruptcy order should not ordinarily be made where the petition is defective as a result of such a breach. The breach is capable of cure by amendment. The hearing of the petition should be adjourned for the purpose of amendment and for time to pay the debts in full.

59. Having regard to the factual background, a reasonable period of time is at least six months.

60. I will hear counsel on the precise period for an adjournment when this judgment is handed down. Postscript

61. This judgment was produced in December 2019 and circulated in January 2020. Handing-down was adjourned for further argument, at the request of the parties. The parties agreed to a hearing after 1 June 2020. The outbreak of Covid-19COVID-19 It is a SARS-COV-2 (severe acute respiratory syndrome coronavirus-2)-mediated viral infection presenting with varying degrees of clinical severity and symptomology The first documented case of COVID-19 in China was reported in 2019. has made fixing a date uncertain. In my judgment it is in the interests of the administration of justice and in the public interest that this judgment be handed down now. In any event the agreed adjournment is not inconsistent with the judgment. Two matters arise. First, I shall order that the decision hearing for the purpose of CPR 52.3(2) is to be adjourned to a date to be fixed, and I shall extend time for filing an appellant’s notice to 21 days after the decision hearing, subject to permission. Secondly, no decision has been made in respect of the further argument referred to above, namely that as a matter of fact the whole of the debt owed by the Respondent to the Petitioners is secured. Consequently, it is argued, the court should not adjourn the hearing of the petition but exercise its discretion to dismiss the petition. Further evidence may be served in respect of this argument at the adjourned hearing.