In State-owned Indian banks and JM Financial Asset Reconstruction Co. Pvt. Ltd vs Vijay Mallya  EWHC 1084 (Comm), the English High Court, QB’s division addressed the issue of whether or not to set aside the registration order (“Registration Order”) registering a judgment of the Bangalore Debt Recovery Tribunal (“the DRT”) in favour of the Claimants against Mr. Mallya (“the DRT Judgment”) under the Foreign Judgments (Reciprocal Enforcement) Act 1933 (“the 1933 Act”), or to suspend enforcement of the Registration Order. Another issue in question was whether or not to set aside a worldwide freezing order granted by Picken J and continued by Moulder J of English High Court (“the WFO”). After analyzing the applicable law, witness evidence, various orders from Indian courts/tribunal and complex property structures of Mr. Mallaya, the Court concluded as follows:
- the Registration Order was properly made;
- it is not appropriate to set aside the Registration Order, to stay enforcement or to adjourn the application to set the Registration Order aside;
- the Claimants have established a good case for the continuation of the WFO, and there are no grounds on which it would be just to set it aside.
The case analysis follows.
In 2003, Mr. Mallya launched Kingfisher Airlines Limited (“KFAL”). After 2008 financial crises, the First Claimant, State Bank of India (“SBI”), provided loan to KFAL from 2009 onwards. In the present case, the Claimants were state-owned Indian banks (apart from JM Financial Asset Reconstruction Co. Pvt. Ltd, which is an asset restructuring company that purchased debt owed to other Indian banks). In an attempt to secure KFAL’s future, the Claimants combined together to negotiate a Master Debt Recast Agreement (“MDRA”) which subsumed within its terms all of KFAL’s outstanding loan obligations. KFAL’s obligations under the MDRA were secured by, among other things, a personal guarantee from Mr. Mallya (“the Personal Guarantee”) and a guarantee from United Breweries (Holdings) Limited (“UBHL”).
KFAL fared badly, and SBI declared it a non-performing asset in 2012. Also in 2012, the Civil Aviation Authority suspended KFAL’s operating licence and winding up proceedings were commenced by some of its creditors. In 2013, Mr. Mallya, UBHL and Kingfisher Finvest (India) Ltd (“KFin”) commenced proceedings in the Bombay High Court challenging, among other things, the validity of the Personal Guarantee on the basis of alleged non-compliance with Indian banking rules and coercion. That claim remains to be determined and is further considered below.
Thereafter, the Claimants called in their loans under the MDRA. On the same date, applications by UBHL, KFin and Dr Mallya in the Bombay High Court for interim relief were refused, and the court ordered the determination as a preliminary of the question “whether this Court has jurisdiction to try and entertain the present suit”.
Then the Claimants commenced proceedings in the Debt Recovery Tribunal (“DRT”) against KFAL, UBHL, Dr Mallya and others. Mr. Mallya and others made an application in the DRT contesting its jurisdiction on the basis that the Claimants had already commenced proceedings in the Karnataka High Court and that Mr. Mallya and others had already brought proceedings in the Bombay High Court. The DRT dismissed this challenge and Mr. Mallya initiated an appeal to the Debt Recovery Appeal Tribunal (“DRAT”).
In 2015 Mr. Mallya applied to withdraw the application for interim relief in the Bombay High Court, seeking at the same time to overturn the court’s decision to determine the question of jurisdiction as a preliminary issue (which would, it appears, mean the question of jurisdiction would have to be dealt with at the final hearing on the merits). Those applications have not yet been disposed of.
In 2017 the DRT issued the DRT Judgment. Dr Mallya’s appeal to the DRAT from the DRT’s 2013 dismissal of Dr Mallya’s jurisdiction challenge was dismissed in 2017. Then the DRT issued an amended Recovery Certificate providing for recovery under the statutory procedure of sums due under the DRT Judgment. The Presiding Officer of the DRT issued a letter under seal regarding the DRT’s jurisdiction.
Mr. Mallya and UBHL lodged appeals with the DRAT from the DRT Judgment along with applications to condone delay. The appeal documents contained errors which the DRAT required to be corrected. Those errors were not corrected and in 2018 the appeal of Mr. Mallya was dismissed for non-compliance and non-attendance by counsel at the hearing.
A DRT Order of Attachment was made on 19 January 2018 in respect of shares in United Breweries Ltd said to be worth £385.9 million. Thereafter, the DRAT dismissed UBHL’s appeal from the DRT Judgment stating that “no good ground is made out for extension of time”. Mr. Mallya makes the point that this was in fact not a substantive ruling on UBHL’s application to condone delay, and in any event that his circumstances are different from those of UBHL.
Thereafter, Mr. Mallya issued applications to restore his appeal and for condonation of the delay in issuing that restoration application. The DRAT made an interim order directing Mr. Mallya to deposit Rs. 3,101 crores (being 50% of the principal included within the DRT Judgment sum) with the DRAT before 25 April 2018 as a pre-condition to the DRAT considering his applications to restore the appeal and for condonation of the delay in filing the appeal. Mr. Mallya on 13 April 2018 issued an application in the Karnataka High Court challenging the DRAT’s order.
In parallel with these civil proceedings, Mr. Mallya is the subject of criminal proceedings in India arising out of loan arrangements with the IDBI Bank Limited, which have led the Indian Government to request his extradition from England. He is contesting those extradition proceedings on the basis that the criminal charges are without substance and are politically motivated.
Contentions raised by Mr. Mallya
Following contentions were raised by Mr. Mallya in this regard:
- That the DRT Judgment does not qualify (and is not capable of qualifying) as a judgment of a “Superior Court” within the meaning prescribed by Section 4 of the 1958 Order in Council; and/or
- That the DRT Judgment can be enforced only in the manner prescribed by the Debt Recovery Tribunal Regulations 2015 (the “DRT Regulations”), and so is not permitted to be enforced in England and the Registration Order ought not to have been made; or
- That Mr. Mallya’s appeal in the DRAT is pending against the DRT Judgment; and/or
- Mallya’s pending and prior claim in the Bombay High Court will, if successful, as a matter of Indian law override and supersede the DRT Judgment; or
- That a stay of enforcement of the DRT Judgment in England (i) pending the determination of Mr. Mallya’s appeal against the DRT Judgment and/or the determination of his challenge in the Bombay High Court, or (ii) on the basis that the DRT Regulations do not permit enforcement of the DRT Judgment in England; or
- (at the very least) an adjournment of Mr. Mallya’s application under section 5 of the 1933 Act until after the expiration of such period as appears to the court to be reasonably sufficient to enable Mr. Mallya to take the necessary steps to have his appeal (and Bombay High Court challenge) disposed of in India. During the pendency of such an adjournment, no enforcement steps would be permissible: (under CPR 74.9(1)(b)). Given the significant amount of time it will take for those processes to conclude in India (which is common ground), Mr. Mallya takes a pragmatic approach that such an adjournment may need to be granted in stages with a reporting mechanism built into the order so that the English court may be kept informed of developments.
Applicable Legal Principles
The Registration Order was made under the 1933 Act as amended by the Civil Jurisdiction and Judgments Act 1982. The 1933 Act applies to India by virtue of the Reciprocal Enforcement of Judgments (India) Order 1958 (the “1958 Order in Council”).
Section 1(1) and (3) and of the 1933 Act are reproduced below:
1(1) If, in the case of any foreign country, Her Majesty is satisfied that, in the event of the benefits conferred by this Part of this Act being extended to, or to any particular class of, judgments given in the courts of that country or in any particular class of those courts, substantial reciprocity of treatment will be assured as regards the enforcement in that country of similar judgments given in similar courts of the United Kingdom, She may by order in Council direct
(a) that this Part of this Act shall extend to that country;
(b) that such courts of that country as are specified in the Order shall be recognised courts of that country for the purposes of this Part of this Act; and
(c) that judgments of any such recognised court, or such judgments of any class so specified, shall, if within subsection (2) of this section, be judgments to which this Part of this Act applies.
1(3) For the purposes of this section, a judgment shall be deemed to be final and conclusive notwithstanding that an appeal may be pending against it, or that it may still be subject to appeal, in the courts of the country of the original court.
Section 2(1) and (2) of the 1933 Act are as follows:
2(1) A person, being a judgment creditor under a judgment to which this Part of this Act applies, may apply to the High Court at any time within six years after the date of the judgment, or, where there have been proceedings by way of appeal against the judgment, after the date of the last judgment given in those proceedings, to have the judgment registered in the High Court, and on any such application the court shall, subject to proof of the prescribed matters and to the other provisions of this Act, order the judgment to be registered:
Provided that a judgment shall not be registered if at the date of the application—
(a) it has been wholly satisfied; or
(b) it could not be enforced by execution in the country of the original court.”
“2(2) Subject to the provisions of this Act with respect to the setting aside of registration –
(a) 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
Provided that execution shall not issue on the judgment so long as, under this Part of this Act and the Rules of Court made thereunder, it is competent for any party to make an application to have the registration of the judgment set aside, or, where such an application is made, until after the application has been finally determined.
Sections 4 and 5 of the 1933 Act provide mandatory and discretionary grounds under which a registration order may be set aside. The same are given below:
4(1) On an application in that behalf duly made by any party against whom a registered judgment may be enforced, the registration of the judgment—
(a) shall be set aside if the registering court is satisfied—
(i) that the judgment is not a judgment to which this Part of this Act applies or was registered in contravention of the foregoing provisions of this Act;
(vi) that the rights under the judgment are not vested in the person by whom the application for registration was made; …”
5(1) If, on an application to set aside the registration of a judgment, the applicant satisfies the registering court either that an appeal is pending, or that he is entitled and intends to appeal, against the judgment, the court, if it thinks fit, may, on such terms as it may think just, either set aside the registration or adjourn the application to set aside the registration until after the expiration of such period as appears to the court to be reasonably sufficient to enable the applicant to take the necessary steps to have the appeal disposed of by the competent tribunal.
Section 11(1) of the 1933 Act provides, inter alia, that “court” for these purposes includes a tribunal. “Judgment” is defined as “a judgment or order given or made by a court in any civil proceedings, or a judgment or order given or made by a court in any criminal proceedings for the payment of a sum of money in respect of compensation or damages to an injured party”.
Paragraph 4 of the 1958 Order in Council states:
4. The following Courts of the said territories shall be deemed Superior Courts of the said territories for the purposes of Part 1 of the said Act [the 1933 Act], that is to say:-
(a) The Supreme Court.
(b) All High Courts and Judicial Commissioners’ Courts.
(c) All District Courts.
(d) All other Courts whose civil jurisdiction is subject to no pecuniary limit provided that the Judgment sought to be registered under the said Act is sealed with a seal showing that the jurisdiction of the Courts is subject to no pecuniary limit.
- Whether the DRT Judgment can properly be registered under the 1933 Act?
- Whether the enforcement of DRT Judgment be stayed on the ground that DRT regulations preclude the enforcement of the DRT Judgment in England and Wales under the 1933 Act?
- Whether or not to set aside the Worldwide Freezing Order?
On issue (i), the Court observed that there appears to be no previous case law about the recognition of final orders of the DRT under the 1933 Act, and the parties have not been able to find examples of previous attempts, whether successful or unsuccessful, to register such orders here. Mr. Mallya contended that only the Recovery Certificate (a certificate issued by DRT Presiding Officer along with the final order, under sub-section (20) of the Recovery of Debts and Bankruptcy Act 1993 (RDB Act), for payment of debt within interest under his signature to the Recovery Officer for recovery of the amount of debt specified in the certificate) and not the DRT Judgment itself can be “enforced by execution” in India within section 2(1)(b) of the 1933 Act. The Court held that on the perusal of the DRT Judgment the DRT itself treated the Recovery Certificate process as a means of execution of its own judgment. Such DRT order is within the scope of section 2(1)(b) of the 1933 Act. The Court further held that none of the provisions relied on by Mr. Mallya establishes any prohibition under Indian law on a successful DRT claimant seeking the recognition and enforcement abroad of a DRT order.
Mr. Mallya argued that the enforcement in England of the DRT Judgment is impermissible and so the Registration Order, being the precursor to such enforcement, is impermissible and ought to be set aside. The Court held that the scope of the powers given to Recovery Officers to enforce DRT orders, and any question about the territorial or extraterritorial extent of their powers, is irrelevant to the question of recognition under the 1933 Act. The 1933 Act gives effect to a scheme for the international recognition and enforcement that is entirely independent of whatever enforcement powers and processes may exist under the domestic laws and procedures of the participating nations.
The Court noted that Section 5 of the 1933 Act permits the court to set aside the registration or adjourn the application to set aside the registration:
“If, on an application to set aside the registration of a judgment, the applicant satisfies the registering court either that an appeal is pending, or that he is entitled and intends to appeal, against the judgment …”
The question thus arouse before the Court was whether Mr. Mallya’s proposed appeal to the DRAT or his existing claim in the Bombay High Court engages this provision. The Court found that there was no appeal pending in the DRAT and Dr Mallya is well out of time for bringing an appeal though he nonetheless contends that he is “entitled” to appeal within the meaning of section 5. In this regard the Court held that an appeal cannot be regarded as “pending”, as a matter of ordinary language, in circumstances where no valid and timely appeal has been lodged. Nor can a person be regarded for the purposes of section 5 as “entitled” to appeal in circumstances where the time for appealing has expired without an appeal having been filed or an application for permission to appeal having been granted. Were it otherwise, a respondent to an application to register a judgment could claim to be entitled to appeal however long had elapsed since the relevant appellate deadline.
The Court held as under:
- That the DRT Judgment falls within paragraph 4 and qualifies for recognition and enforcement pursuant to the 1933 Act.
- That as a general proposition it is not appropriate, or under the 1933 Act and 1958 Order in Council necessary, for the English court to inquire into the vires of judges of the foreign court whose judgment is sought to be recognised. It is possible to conceive of an extreme case where a purported act was plainly without any possible authority and where a different approach might be taken, but the present case does not seem to me to fall in that category. Therefore, the DRT/Presiding Officer does not lacked the power or means to make its judgments capable of enforcement under the 1933 Act/1958 Order in Council.
- That Mr. Mallya’s proposed appeal to the DRAT, even if allowed to proceed, has no apparent merit.
- That the DRT regulations do not preclude the enforcement of the DRT Judgment in England and Wales under the 1933 Act and the Court declined to order a stay on that ground also.
- Mallya left India on 2 March 2016, and has never returned. He is now fighting extradition proceedings brought by the Indian government, which seeks his return to face criminal charges relating to alleged financial misconduct. In all these circumstances, and even taking account of the fact that Mr. Mallya is contesting the alleged grounds for extradition, there are grounds for regarding Mr. Mallya as a fugitive from justice.
- That the Claimants have shown solid evidence of a real risk of dissipation of assets that justifies the grant and continuation of the WFO.