SpiceJet vs Credit Suisse AG- Madras High Court Dismisses Appeal Against Airline, Admission of Winding Up

SpiceJet “has miserably failed to satisfy the three-pronged test suggested by the Supreme Court in Mathusudan Govardhandas & Co Vs Madhu Woollen Industries, and hence had rendered itself liable to be wound up for its inability to pay its debts under Section 433 (e) of the Companies Act 1956,” the high court said in its order. Madras HC has ordered winding up of Spice Jet Ltd. over non-payment of $24 million in dues to Credit Suisse AG.

Justice R Subramaniam’s court kept its verdict in abeyance for a period of three weeks if SpiceJet deposits an amount equivalent to $5 million (approx. Rs. 37.73 crore) within two weeks. In this period, the airline will get an opportunity to avail of appropriate legal remedies against the order.

Back in 2011, Spice Jet Limited (First Party) used the services of SR Technics (Second Party) in Switzerland for Aircraft maintenance and repair, as well as other associated services, under a ten-year agreement. In 2021, the two parties negotiated a supplemental agreement that allowed the airlines to repay the funds raised by SR Technics. The seven invoices raised by SR Technics, the seven matching Bills of Exchange for the amount due under invoicing and the acknowledgment of indebtedness by the issuing of certificates of acceptance by the airlines were the contentious subject before the high court.

The third party was also entitled to receive payments from spice jet under the seven invoices submitted by the SR Technics at various times through a delayed payment mechanism as part of the assignment. Spice jet allegedly refused to pay the money due under the invoices despite repeated demands, even after receiving a statutory notice under Section 433 and 434 of the Companies Act 1956. As a result, the third party preferred to file a corporate petition for winding up under Section 433(e) citing the first party airlines incapacity to repay the debts.

Arguments of Spice Jet

1. Spice jet contended that the debt isn’t legally enforceable and Credit Suisse is not a creditor of SpiceJet. In the absence of any contractual relationship of debtor and creditor, a winding-up proceeding will not hold, it said.
2. The documents relied upon by the petitioner, particularly the assignment deeds, bills of exchange and acknowledgments/certificates of acceptance were not properly stamped, in accordance with the requirements of the Indian Stamp Act. So, these documents can’t be taken as valid evidence of an existing debt, and can’t be enforces in an Indian Court.
3. Also contended that SR Technics didn’t have a valid license to carry out aircraft maintenance services from the Director General of Civil Aviation as required under the Aircraft Act, therefore, the enforcement of the claim would be against public policy.
4. An order of winding up under the Companies Act can’t be issued since debt isn’t proved and the question of inability to repay doesn’t arise.

Arguments of Credit Suisse AG

1. In its petition, credit Suisse claimed that SpiceJet availed the services of a Swiss firm, SR Technics, for maintenance, repair and overhauling of aircraft engines, modules, components, assemblies and parts that are mandatory for its operations.
2. An agreement was into for a period of 10 years on 24 November 2011. On 24 August 2012, a supplemental agreement was entered into to change certain terms of the deal.
3. SR Technics assigned all its present and future rights to receive payments under the agreement to Credit Suisse. This included the bills of exchange issued by SpiceJet pursuant to the two agreements.
4. Credit Suisse submitted that it was entitled to receive payments of the monies due under seven invoices from SpiceJet totaling $24 million.
5. Credit Suisse stated SpiceJet had acknowledged the debt from time to time by issuing certificates of acceptance in relation to the bills of exchange, which implied the airline hadn’t disputed the claims made in the invoices.
6. Despite repeated requests, SpiceJet didn’t make payments under the various invoices the Swiss company said.
7. Since the airline didn’t honor its commitment, Credit Suisse approached the Madras High Court under the Companies Act, seeking the liquidation of the airline.
8. The company filed a petition under Sections 433 (e) and (f) and 434, read with 439, of the companies Act.

The company petition was filed under section 433 (e) and (f) r/w section 434 (1) and 439 (1) (b) of the Companies Act, 1956, praying for an order to wind up Spicejet Limited and appoint an official liquidator with powers under section 448 of the Companies Act to take charge of the assets. While section 433 underscores the circumstances in which a company may be wound up, section 434 states as to when a company can be deemed to be unable to pay its debts. Section 439 deals with provisions as to applications for winding up.

Court rejected SpiceJet’s arguments

1. The high court dwelled upon the scope of the companies act and the circumstances in which a company may be wound up.
2. According to the law, there should be an outstanding debt of over Rs 500, a notice in writing to be delivered at the registered office of the debtor company, and a neglect on the part of the debtor either to pay the money demanded within a period of three weeks or to secure or compound for it to the reasonable satisfaction of the creditor.
3. The court gave its opinion on SpiceJet’s argument related to stamping of bills of exchange, the same will be examined at the time when the actual enforcement or examination of the claim of the petitioner by the official liquidator takes place.
4. It added that SpiceJet chose to carry on a business transaction with SR Technics despite knowing that it did not have DGCA approval.
5. SpiceJet’s argument related to stamping of bills of exchange, the court said the same will be examined at the time when the actual enforcement or examination of the claim of the petitioner by the official liquidator takes place. SpiceJet chose to carry on a business transaction with SR Technics despite knowing that it did not have DGCA approval.

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