ICICI Bank Ltd. vs Classic Diamonds (India) Ltd.

S.C. Gupte, J.—The Company Petition seeks winding up of the Respondent company on the ground of deemed inability to pay its debts within the meaning of Section 433 and 434 of the Companies Act, 1956 ("the Act").

One Aarohi Diamonds Ltd. (in which the Respondent holds 49 % shareholding) had obtained a credit facility (loan) up to the sum of USD 7 million from the Petitioner bank. This loan was inter alia secured by a corporate guarantee issued by the Respondent in favour of the Petitioner. The credit facility was subsequently restricted to the sum of USD 5 millions. The principal borrower defaulted in repayment of the loan availed of under the credit facility. The Petitioner, thereupon, by its letter dated 3 January 2012, cancelled the credit facility with immediate effect calling upon the borrower to make payment of USD 5.15 millions towards the dues outstanding as on 3 January 2012. On 6 February 2012, the Petitioner invoked the corporate guarantee calling upon the Respondent company to pay a sum of USD about 5.20 millions as on 6 February 2012. Upon non-payment of the amount under the corporate guarantee, by its statutory demand notice issued under Section 433 and 434 of the Act, on 16 February 2012, the Petitioner called upon the Respondent to pay a sum of about USD 5.21 millions equivalent to about Rs. 21.71 crores as on 14 February 2012. There is neither compliance with nor reply to the statutory notice on the part of the Respondent. The Petitioner has, in the premises, approached this Court seeking winding up of the Respondent company.

The Respondent has in its reply to the Petition raised various defences, but at the hearing only three defences were urged by learned Counsel for the Respondent. Firstly, it is submitted that the contract of corporate guarantee was executed by the Respondent with the branch of the Petitioner bank at Hong Kong. It is submitted that for the purpose of banking transactions, a branch has a separate existence from the head office or other offices or branches of a bank. It is submitted that there is no privity of contract as between the Petitioner carrying on business at its registered office or at its corporate office at Mumbai and the Respondent. Secondly, it is submitted that the document of corporate guarantee is inadequately stamped and cannot be received in evidence or acted upon in the Company Petition. Thirdly, it is submitted that there is no certificate issued by any authorized officer of the Petitioner in respect of its claim in the Petition, which was a requirement of the Corporate Guarantee Agreement. It is submitted that in fact there is no disclosure in the Petition about the various payments made by the principal borrower to the Petitioner in discharge of the guaranteed debt.

In support of his submission that the transaction between parties is entered into by the Hong Kong branch of the Petitioner and, therefore, the present petition cannot be maintained by the Petitioner carrying on business at its principal or corporate office in India, learned Counsel for the Respondent relies upon the judgment of the Supreme Court in case of Agencia Commercial International Limited and Others Vs. Custodian of the Branches of Banco Nacional Ultramarino, and of Calcutta High Court in the case of M/s. Chainrup Sampatram Vs. Punjab and Sind Bank, .

Agencia Commercial International Ltd. emphasizes the distinct and separate identity of a branch of a bank based on the observations of the Supreme Court in The Delhi Cloth and General Mills Co. Ltd. Vs. Harnam Singh and Others, . The judgment in Delhi Cloth and General Mills Co. Ltd. notes a settled rule that the obligation of a bank to pay the cheques of a customer rests primarily on the branch at which he keeps his account and the bank can rightly refuse to cash a cheque at any other branch. A customer must make a demand for payment at the branch where his account is kept before he has a cause of action against the bank. This case and the cases that follow it consider the identity of a branch as a distinct and separate entity in the context of ascertaining the situs of the debt and also in the context of the jurisdiction of the Court from the point of view of the place of accrual of cause of action. The case of Agencia Commercial International Ltd. contains peculiar facts. Originally, Banco Nacional Ultramarino (the National Overseas Bank) with its Head Office at Lisbon in Portugal had branches in Goa before the territories of Goa, Daman & Diu were liberated from the Portuguese rule and integrated with India. On the eve of the transfer of power, Banco Nacional Ultramarino closed its branches in Goa and moved a substantial portion of valuable assets held there to its Head Office at Lisbon and other places overseas. The closure of the branches of Banco Nacional Ultramarino at Goa gave rise to a considerable confusion. It was necessary to take measures for exchange of over nine crore rupees worth of Portuguese currency and likewise to provide for payment of monies and return of valuables deposited with the now closed branches. (As Banco National Ultramarino had closed its branches, no one could operate on them.) To relieve the confusion and distress, the President of India promulgated the Goa, Daman & Diu (Banks Reconstruction) Regulation, 1962. The Regulation provided that on and from the appointed date, the branches would be reconstructed in the interest of general public in accordance with the provisions of the Regulation, which in effect provided for integration of all branches of Banco Nacional Ultramarino into a fully re-constituted bank independent of Banco National Ultramarino for the limited purpose of disposal of business pending on the date of the transfer of power and closure of the bank as well as transfer of liabilities of the bank to, and their vesting in, the Custodian. The dispute before Supreme Court arose from a suit filed by the custodian in the Court of Civil Judge at Ilhas, Panaji against one Agencia Commercial International, its managing partner and his wife. It was alleged in the suit that the branch of Banco Nacional Ultramarino at Panaji, at the request of the defendant, opened a current account in its favour with a certain limit. The loan amount was secured by promissory notes executed by the defendant and guaranteed by its managing partner and his wife. The plaintiff''s case was that the loan amount showed a debit balance and the account being closed on 20 December 1961 and the balance thereof becoming payable, the plaintiff was entitled to sue inter alia on the promissory notes, the promissory notes were not in possession of the plaintiff and were presumably removed to Portugal. The plaintiff, in the premises, prayed for a joint and several decree against the defendants. The suit was resisted by the defendants principally on the ground that Banco Nacional Ultramarino was a public limited company with its Head Office at Lisbon and the branch at Panjim did not possess a separate judicial personality from the company and could not be said to possess assets or liabilities of its own; that transactions by the Panjim branch were made under the direct superintendence of the Head Office and the credit was granted directly by the Head Office; and that the credit in question was incorporated in promissory notes lying with Banco Nacional Ultramarino which had already informed its debtors that it would take action on the bills directly or by transferring them to a third party. On these facts and contentions, the Supreme Court considered the question as to the separate identity and existence of the branch. On facts, it was found that the loan agreements were signed by the manager of the relevant branch and the loan accounts were opened by the branch in its books; that payments were made by the branch to the appellants; that deposits by way of repayment were made in this account maintained by the branch; and that the appellants hypothecated their goods in favour of the branch. In short, what was found was that though the Head Office authorized the branch to execute documents, the transactions for all purposes were actually controlled and worked out by the branch. On these findings of fact, the Supreme Court essentially held that considering the fact that branches were regarded for many purposes as separate and distinct identities from the Head Office and from each other in relation to banking law and practice and that apparently in that light the Regulation had been framed, the Regulation was intended to achieve certain purposes, namely, to dispose of the pending business of the branches and discharge of existing liabilities and recovery of existing debts and assets with a view to the ultimate winding up of the bank. The Supreme Court held that the particular provisions of the Regulation clearly proceed on the basis that the branches must be regarded as entering into and carrying out transactions identifiable as theirs. The Regulation treated these transactions as distinct from those carried on by the Head Office. Accordingly, effect had to be given to the provisions of the Regulation entitling the custodian to sue for recovery of debts covered by the loan agreements executed with the branches. The Supreme Court held that the very object and purpose of the Regulation would be frustrated and its provisions nullified if the contentions advanced by the appellants were accepted.

The decision of the Supreme Court was rendered in the peculiar facts and circumstances of the case. This decision and other decisions of the Court referred to above and followed in the banking law are all decisions pertaining to the question of jurisdiction of the Court to entertain a dispute with a particular branch and reflect on the situs of the debt or situs of the defendant branch for the purposes of jurisdiction. None of these decisions has ever considered the question of identity and separate existence of a branch from the point of view of privity. None of these decisions suggest that when a constituent enters into a transaction with the branch of a bank, he has no privity with the head office of the bank. It is another point that he may have a cause of action against the branch at a particular place at which the branch is situated but it cannot be suggested that he has privity only with the branch and not the bank carrying on business generally or at its head office. Even the case of Chainrup Sampatram (supra) relied on by the Respondent''s counsel is in the context of jurisdiction in case of a banking transaction. It considers the question only in the context of the situs of the debt and also the situs of the defendant for the purpose of jurisdiction of the Court. We are not concerned here with the question of jurisdiction of the Court to entertain this Company Petition. That jurisdiction evidently lies with this Court since the Respondent Company''s registered office is situated in the State of Maharashtra. What is alleged in this case is that the Petitioner only has a privity of contract vis-a-vis the particular branch at Hong Kong and not as a bank carrying on business in its head office or corporate office in India. That is plainly unsustainable. Besides, whatever may be the transaction of the Hong Kong branch of the Petitioner bank with the principal borrower, the document of guarantee is clearly executed by the Respondent in favour of the Petitioner which is described as having its registered office at Vadodara and its corporate office at Mumbai acting through its Hong Kong branch. The promisee, in the present case, accordingly, was not the branch but ICICI Bank Ltd. having its registered office at Vadodara, its corporate office at Mumbai and acting through its Hong Kong branch. This puts the matter beyond the pale of any controversy, since even if the transaction was actually executed through or with the Hong Kong branch, that branch itself was merely acting as an agent of ICICI Bank with its registered office in Vadodara and corporate office in Mumbai. So much for the first defence of the Respondent.

The second defence concerns inadequacy of stamp duty payable on the document of corporate guarantee. The corporate guarantee was executed in the State of Gujrat and is stamped with a stamp duty of Rs. 100/- in accordance with the residuary clause, namely, Clause (j) of Article 5 of Schedule-I to the Bombay Stamp Act as applicable in Gujrat. There is no controversy that this is an adequate stamp duty payable on the instrument in the State of Gujrat where it was executed. What is, however, submitted is that when this document comes into the State of Maharashtra, by virtue of Sections 18 and 19 of the Bombay Stamp Act as applicable in the State of Maharashtra, the requisite stamp duty payable on the document in accordance with the Stamp law of the State of Maharashtra must be paid on it within a stipulated period. It is submitted that if such stamp duty is not paid, the document is not only inadmissible in evidence but cannot be acted upon in the State of Maharashtra. The argument overlooks the position that when the Company Court considers whether or not to wind up the respondent company before it, it is not acting on any particular document. The court is essentially considering whether the company is unable to pay its debts. Section 434 of the Act provides for the case of deemed inability to pay its debts. If a creditor, to whom the company is indebted in a sum exceeding the statutory minimum, has served on the company a demand requiring it to pay the sum so due and the company has thereafter neglected to pay the sum or secure the same to the reasonable satisfaction of the creditor, the company is deemed to be unable to pay its debts. The Company Court is essentially concerned with the debt of the company and its inability to pay the same. No doubt the company may raise a defence, and it may even be termed as a bona-fide defence, that if the creditor were to enforce the debt in a Civil Court, the creditor would not be entitled to rely upon the document, forming the basis of the debt, on account of inadequacy of stamp duty paid thereon. This may well be a defence to the debt but then there is nothing to show or claim that the creditor will enforce his debt in the State of Maharashtra. He may well do so in the State of Gujrat, where the document can be acted upon as adequately stamped and admissible in evidence. The Company Petition is, accordingly, based on a debt to which there is no defence if the Petitioner were to file a suit in an appropriate court of law. The Company Petition can surely be sustained on such debt and that the debt is not enforceable in the State of Maharashtra is no defence to the Company Petition. So much for the second defence of the Respondent.

The last defence of the Respondent is about want of a certificate by an authorized officer of the Petitioner in accordance with the terms of the Corporate Guarantee. The Corporate Guarantee inter alia provides (in clause 15 thereof) that a certificate in writing signed by a duly authorized officer of ICICI Bank shall be conclusive evidence against the guarantors of the amount for the time being due. In other words, a certificate referred to in Clause 15 is stated to be a conclusive evidence of the dues. But it is not the only evidence of such dues. The dues may be proved by means of other evidence as well. If there is overwhelming evidence available on the record concerning the dues of the Petitioner, it is immaterial that a document termed as conclusive evidence is not produced before the Court. So much for the third and last defence of the Respondent.

In sum, there is no defence at all to the liability owed by the Respondent to the Petitioner. The Respondent has not only executed a Corporate Guarantee but has also addressed a letter of 22 April 2009 to the Petitioner submitting an undertaking as follows:

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

The Respondent has also annexed a further letter of 17 May 2010 to the Petitioner reiterating the position as follows:

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

These admissions are followed by another document, termed as Amendatory Facility Letter, signed by the principal borrower in favour of the Petitioner on 9 December 2010 with an acceptance endorsed by the Respondent as a guarantor according to the terms of the Amendatory Facility Letter. The Respondent has also admitted the liability in its balance sheet as of 31 March 2011. No doubt the liability mentioned in the balance-sheet is stated to be a contingent liability in the sense that the liability had not yet accrued in presenti since there was no default of the principal borrower to pay the debt and no demand as yet on the guarantor. What is clear, however, is that the figure of the debt claimed by the Petitioner is not disputed. In other words, the quantum of the liability is admitted, even though the same is described as a contingent liability. Then there is also the failure to reply to the statutory notice. A collective reading of all these facts, in the light of documents produced by the Petitioner before this Court, makes it quite clear that the Petitioner''s debt over Rs. 22 Crores cannot be said to be disputed bona fide by the Respondent. The Petitioner has correctly disclosed the position of the debt as of the date of the Petition. In its rejoinder, the Petitioner has disclosed the payments made by the principal borrower to the Petitioner during the pendency of the Petition. After giving credit for all these payments, a sum of about Rs. 33.53 Crores as of the date of rejoinder is clearly due and payable by the Respondent to the Petitioner and for which there is no genuine defence.

In the premises, the following order is passed:

(i) The Company Petition is admitted and made returnable on 4 January 2016;

(ii) The Petitioner is directed to advertise the Petition in two local newspapers, viz. "Free Press Journal" (in English) and "Nav- Shakti" (in Marathi) and also in Maharashtra Government Gazette. Any delay in publication of the advertisement in the Maharashtra Government Gazette, and any resultant inadequacy of the notice shall not invalidate such advertisement or notice and shall not constitute non-compliance with this direction or with the Companies (Court) Rules, 1959;

(iii) The Petitioner shall deposit an amount of Rs. 10,000/- with the Prothonotary and Senior Master of this Court towards the publication charges, within a period of two weeks from the date of this order, with intimation to the Company Registrar. After the advertisements are issued, the balance, if any, shall be refunded to the Petitioner;

(iv) Notice under Rule 28 of the Companies (Court) Rules is dispensed with by the company.

On the application of learned Counsel for the Respondent, the Petitioner is directed not to issue any advertisement in pursuance of this order for a period of four weeks from today.