HC upholds order on winding up UBHL for failing to pay debts of Kingfisher Airlines

‘Mallya’s settlement offer can’t be said to have been made in good faith as offered assets were attached by ED or DRT’

March 06, 2020 05:05 pm | Updated March 07, 2020 09:14 am IST - Bengaluru

Indian businessman Vijay Mallya leaves the Royal Courts of Justice in London, Britain February 11, 2020. REUTERS/Simon Dawson

Indian businessman Vijay Mallya leaves the Royal Courts of Justice in London, Britain February 11, 2020. REUTERS/Simon Dawson

Liquor baron Vijay Mallya’s offer for settlement of debts of Kingfisher Airlines Ltd. (KFA) suffered a blow as the High Court of Karnataka on Friday termed it as “cannot be said to be bonafide and made in good faith” while dismissing an appeal filed by United Breweries (Holdings) Ltd., the 102-year-old parent company of the UB Group, against the order for its winding up for its failure to pay liabilities to creditors, including banks, as per the corporate guarantees extended to the KFA.

A Division Bench comprising Justice Alok Aradhe and Justice Ravi V. Hosmani delivered the verdict while upholding the winding up order passed by a single judge on February 7, 2017.

“There is no serious challenge on behalf of the appellant [UBHL] to the single judge’s order and only submission on merit with regard to the single judge’s order that has been urged is that the assets of the company [UBHL] are more than the debts,” the Bench said.

On offer of settlement made by the UBHL by claiming that the market value of the company’s assets is more than the debts, the Bench said many of the assets proposed by the UBHL in the settlement offer were attached either by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act, 2002 or by the Debt Recovery Tribunal (DRT) under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.

Citing apex court’s judgments, the Bench said the High Court, under Section 483 of the Companies Act, 1956, cannot prohibit the statutory authorities, the ED and the DRT, from discharging their statutory functions. Therefore, the Bench said, the offer for settlement made on behalf of the UBHL cannot be accepted as the High Court cannot issue direction for sale of the assets attached by the ED or the DRT.

On Mallya’s plea

On plea filed by Mr. Mallya offering settlement before the Division Bench in the course of hearing of the appeal, the Bench said that he was not a party in the proceedings before the single judge, and he was declared as a fugitive offender and is facing a contempt of court proceedings initiated by the High Court for breaching an undertaking given to the DRT for not alienating his assets.

“The offer cannot be said to be bonafide and made in good faith as the same has been made in respect of the assets attached by the ED or by the DRT,” the Bench observed.

On UBHL’s claim that as on January 17, 2020 the value of its assets was ₹8,667.86 crore and the value of the assets of its other entities was ₹3,051.04 crore, the Bench said this claim was not supported by an affidavit or any document to show the market value of assets and hence no reliance could be placed on it.

Observing that there was no challenge in the appeal on the single judge’s finding that the company was unable to pay debts, the Bench said there was no infirmity to interfere with the order of the single judge.

The winding up order was passed on the petitions filed by unsecured creditors and suppliers, including IAE International Aero Engines AG; Rolls-Royce & Partners Finance Ltd., London; BNP Paribas, France; and secured creditors, a group of banks led by SBI.

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