Company Petition No. 69 of 2013. Case: Marine Geotechnics LLC Vs Coastal Marine Construction & Engineering Ltd.. High Court of Bombay (India)

Judgment:

G.S. Patel, J.

1. Is an ex-parte default summary judgment obtained in a non-reciprocating foreign country against an Indian company a 'debt' due and payable by it within the meaning of Section 433(e) of the Companies Act, 1956? This is the issue in this winding up petition. The petitioner, Marine Geotechnics LLC ("Marine Geotechnics") is an American company. It has its headquarters in Houston, Texas. It brought suit against the respondent-Company, Coastal Marine Construction & Engineering Ltd. ("Coastal Marine") in the United State District Court, Southern District of Texas, Houston Division. Marine Geotechnics filed a Motion for Entry of Default Judgment against Coastal Marine and three others. On 18 January 2011, the US District Court granted Marine Geotechnics' motion and entered default judgment against Coastal Marine and one of the other defendants. A copy of that opinion/judgment is annexed to the affidavit in rejoinder. The order is composite. Against two other defendants it obtained a summary default judgment. Against Coastal Marine and one other defendant it obtained a default judgment. The total amount decreed is in the aggregate sum of US$ 432,731.28.

2. Marine Geotechnics' lawyers issued a statutory notice to Coastal Marine on 15 September 2012. Coastal Marine's advocates replied on 8 October 2012 denying liability, saying that Coastal Marine was unaware of any such decree. Marine Geotechnics' advocates responded on 20 October 2012.

3. Mr. Narula for the petitioner, Marine Geotechnics, submits that there is no defence to the petition. There is, he says, a valid decree against Coastal Marine, and it has not been satisfied despite service of a statutory notice. Coastal Marine must be deemed to be unable to pay its debts within the meaning of Section 434(1)(a) of the Companies Act, 1956. In any case, he says, Coastal Marine has liabilities in excess of Rs. 26 crores and is commercially insolvent.

4. Mr. Sheth, appearing for Coastal Marine, disputes it liability altogether. Coastal Marine was, he says, never served with a writ of summons (or its equivalent). There is no evidence of service. The default judgment of the US District Court is just that: an ex-parte default summary decree against Coastal Marine since it did not appear. Mr. Narula's attempt at this sage to produce proof of service is not something that I can or am willing to examine; certainly there is nothing on affidavit to demonstrate service. The document Mr. Narula produces is also not one that I can accept like this at its face.

5. Even if there was any such evidence, I doubt it would assist Mr. Narula much. Mr. Sheth's submission is that this is ostensibly a decree or a judgment of a foreign court in a non-reciprocating territory. Under Section 13 of the Code of Civil Procedure, 1908 ("CPC"), the judgment on which this decree is based is conclusive, but only if it satisfies the tests of that section. That means that the decree is no debt till it is made a rule of a court in India, and that, he says, can only be done once the Marine Geotechnics files a suit on that judgment and brings it within the parameters of Section 13. Until that time, Mr. Sheth submits, the judgment of the US District Court is not a 'debt' within the meaning of Section 433(e) of the Companies Act, 1956 sufficient to provide a foundation for a winding up action.

6. Mr. Narula relies, first, on the decision of a single Judge of this Court in China Shipping Development Co. Ltd. vs. Lanyard Foods Ltd. [2008] 142 CC 647 (Bom): 2007 (5) Bom CR 684 There, in a case of Affreightment, four letters of indemnity were said to have been issued by the respondent-company jointly and severally with the State Bank of Saurashtra. The petitioner having delivered the cargo at the respondent-company's request, the petitioner incurred liabilities to third parties who claimed they were lawful holders of one or more of the bills of lading in question. Legal proceedings were initiated against the petitioner by these third parties, and judgment obtained. The petitioner invoked the indemnities. After its action in England against the Bank of Saurashtra failed, it brought suit there against the respondent-company. Despite being duly served, the respondent-company did not enter appearance or file a defence. The petitioner moved the English court for a summary judgment under the English Civil Procedure Rules. The respondent-company received intimation of this. It did not appear. Summary judgment was entered against the respondent. The respondent was served with the decree and a certificate of the Master of the English Court that no appeal had been filed.

7. The petitioner then issued a statutory notice to the company in India, calling upon it to pay the decreetal sum. There was no reply. The petitioner filed for winding up. The company's defence was, inter alia, that the English judgment did not meet the requirements of Section 13 of the CPC. This court held that the petition was maintainable. The defence taken before the China Shipping court was that the English courts lacked jurisdiction and that the decision was not on merits. Chandrachud, J. (as he then was) held that the provisions of Section 13 must be borne in mind. That section makes a foreign judgment conclusive on any manner directly adjudicated in it. This is subject to the exceptions listed in clauses (a) to (f). Two of these were canvassed before the learned single Judge: that the English court was not one of competent jurisdiction; and that the decision was not on merits. Both arguments were rejected on the facts before the court. Chandrachud, J. said:

   A defendant to the proceedings before a foreign Court who chooses not to appear despite being served runs the risk of an ex parte judgment in favour of the plaintiff and it is a well-settled principle of law that even such a judgment would be a judgment given on merits if evidence is adduced on behalf of the plaintiff and judgment is based on a consideration of the evidence.

8. The company petition was admitted and directed to be advertised. The company appealed. The judgment of the Division Bench, Lanyard Foods Ltd. v. China Shipping Development Co. Ltd., 2007 (5) Bom CR 75 notes the submission of the appellants that the case fell under Section 434(1)(b) and not Section 434(1)(a) of the Companies Act, 1956. It also noted the submission on behalf of the respondent to the appeal, the original petitioner, that an amount due under a decree is as much a debt as any other, and that a petitioning-creditor who is also a decree-holder is not invariably driven to Section 434(1)(b) alone. The issue of whether a foreign decree from a non- reciprocating territory can ever constitute a debt was not considered by the appeal court. What remained was the learned single Judge's finding of fact that the judgment of the UK Court was a decision on merits by a competent court, and hence did not fall afoul of the parameters of Section 13 of the CPC. Neither of these decisions is, therefore, of assistance to Mr. Narula.

9. The decision of a Division Bench of the Gauhati High Court in Kitply Industries Ltd. vs. California Pacific Trading Corporation [2008] 142 Comp Cas 286 (Gau) is, however, one where there was...