Foreign decree needs to conform to CPC requirements: BHC

The Bombay High Court held that a foreign decree does not create a ‘debt’ that can be said to be ‘payable now’ against an Indian company if the foreign decree does not conform to the requirements of Section 13 of Civil Procedure Code (“CPC”).

The Court said a foreign decree of a non-reciprocating state invariably does not create a ‘debt’ that can be said to be ‘payable now’ by the respondent-company against whom it is obtained, and thus sufficient to maintain a winding up petition under Sections 433 and 434 of the Companies Act, 1956, even if, albeit on a prima-facie assessment, it does not conform to the requirements of Section 13 CPC.

“Decrees of both reciprocating and non-reciprocating territories must, however, satisfy the tests of Section 13. The difference is at what stage, and on whom lies the burden. Where a foreign judgment is not on merits, or violates any of the provisions of sub-clauses (a) to (f) of Section 13, it is not conclusive, even though it may accord with the domestic procedure of the country in which it was passed and is valid and enforceable in that country”, the Court observed.

The Court further opined, “Armed with a decree of a court in a non-reciprocating foreign territory, what must a party do in India? His option is to file, in a domestic Indian court of competent jurisdiction, a suit on that foreign decree, or on the original, underlying cause of action, or both. He cannot simply execute such a foreign decree. He can only execute the resultant domestic decree. To obtain that decree, he must show that the foreign decree, if he sues on it, satisfies the tests of Section 13. If the decree is, on the other hand, of a court in a reciprocating territory, then he can straightaway put it into execution, following the procedure under section 44A and Order XXI, Rule 22 of the CPC.”

The Court, for the purposes of a winding up petition, summarized:

(a) It is not every foreign decree, irrespective of whether or not it is on merits, that can, therefore, be said to be a ‘debt’ for the purposes of Section 433(e) of the Companies Act, 1956. Any foreign decree, whether of a reciprocating or non-reciprocating territory, that is not on merits, or does not otherwise satisfy the requirements of Section 13 of the CPC, cannot be the basis of a winding up petition. It is not a debt due.

(b) A foreign decree of a reciprocating territory, if found to be on merits and otherwise not afoul of CPC Section 13, is a debt due, and a winding up petition can be maintained on it even without it being put in execution.

(c) The only manner in which a decree of a non-reciprocating territory can be recovered is if it is made to pass the test of Section 13 of the CPC. Usually, that is done by filing a suit on it (or on the original cause of action, or both). Once the parameters of CPC Section 13 are met, it is not possible to examine the sufficiency of evidence before the foreign court, or to test the correctness of the decision.

(d) The winding up process cannot be used as a substitute for a necessary and required civil proceeding. A winding up petition based only on a foreign decree of a non-reciprocating territory cannot, absent even a minimal prima-facie assessment under CPC section 13, is not maintainable. Where such a petition is based only on the foreign decree of a non-reciprocating territory, it is for the petitioning-creditor to show that the tests of Section 13 CPC are met. At this stage, where the company court finds that a fuller enquiry is needed, for instance, requiring evidence as to service, no order of winding up can be made.

(e) A party who has a foreign decree from a non-reciprocating territory may nonetheless maintain a winding up petition on the original or underlying cause of action. The fact that there is also a foreign decree does not bar the filing of such a petition.

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