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IN THE HIGH COURT OF DELHI AT NEW DELHI
Amit Bansal, J.
Toshiaki Aiba As The Bankruptcy Trustee - Appellant
Versus
Vipan Kumar Sharma & Anr. - Respondents
CS (Comm) 1136 of 2018 and I.A. No. 7598 of 2020 (U/O-Xi R-1(5) of CPC)
Decided On : 26-04-2022
Order VII Rule 11 of CPC - Loan Agreements - Bankruptcy Trustee - Fraudulent Transfer - Japanese Bankruptcy Act - Transfer of Property Act - Commercial Suit - Cause of Action - Foreign Judgments - Limitation - Expert Opinion - Additional Documents
Fact of the Case:
The plaintiff, a Bankruptcy Trustee, filed a suit to administer the bankrupt defendant's properties in India to realize monies owed to creditors in Japan. The defendants executed fraudulent transfers of the properties to defeat the creditors. The defendants raised objections under Order VII Rule 11 of CPC, including lack of cause of action, non-reciprocating territory, and limitation under Japanese law.
Finding of the Court:
The court found the suit maintainable as a commercial suit under the Commercial Courts Act, irrespective of the nature of the properties. The court rejected objections related to cause of action, non-reciprocating territory, and limitation under Japanese law, emphasizing the need for expert opinion on foreign law. The court allowed the plaintiff to file additional documents necessary for effective adjudication.
Issues: The issues included the maintainability of the suit as a commercial dispute, cause of action, applicability of foreign judgments, and limitation under foreign law.
Ratio Decidendi: The court held that the suit was maintainable as a commercial suit, and objections related to foreign law required expert opinion. The court emphasized the need for due process and respect for foreign judgments, rejecting objections based on non-reciprocating territory and limitation under foreign law.
Final Decision: The court dismissed the application under Order VII Rule 11 of CPC and allowed the plaintiff to file additional documents necessary for effective adjudication.
JUDGMENT
Amit Bansal, J. (Oral). - I.A. No.6242/2020 (of the defendant no.2 u/O-VII R-11 of CPC)
1. The present application has been filed on behalf of the applicant/defendant no.2 under Order VII Rule 11 of the Code of Civil Procedure, 1908 (CPC) seeking rejection of the plaint.
2. Notice was issued in this application on 29th July, 2020. Pursuant thereto, reply has been filed on behalf of the non-applicant/plaintiff.
3. Brief facts necessary for deciding the present application, as set out in the plaint, are set out below:
(i) Between 16th July, 2013 and 20th October, 2014, five separate loan agreements were executed between the Bank of Tokyo Mitsubishi UFJ Ltd. (BTMU), a bank incorporated in Japan, and various companies engaged in the business of shipping.
(ii) In respect of the aforesaid loan agreements, guarantees were given by the defendant no.1 in favour of BTMU.
(iii) Due to failure on the part of the borrowers to repay the loan amounts, an Acceleration Notice dated 10th November, 2015 was issued by BTMU to the defendant no.1 in terms of which the loan amounts were recalled.
(iv) The aforesaid notice was duly received by the defendant no.1 on 12th November, 2015.
(v) Upon failure of the defendant no.1 to repay his debts, the Tokyo District Court, vide order dated 4th January, 2016 declared the defendant no.1 as bankrupt and appointed the plaintiff as the Bankruptcy Trustee Administrator.
(vi) The plaintiff was appointed as a Bankruptcy Trustee in accordance with the provisions of the Bankruptcy Act (Act No. 75 of June 2, 2004) of Japan (hereinafter referred to as the 'Japanese Bankruptcy Act') to recuperate the necessary amounts against the estate of the defendant no.1.
(vii) The defendant no.1 challenged the bankruptcy order of the Tokyo District Court by filing an appeal before the Tokyo High Court.
(viii) The Tokyo High Court dismissed the aforesaid appeal vide detailed judgment dated 17th June, 2016 and upheld the order passed by the Tokyo District Court. Thereafter, the defendant no.1 filed an appeal before the Supreme Court of Japan, which was dismissed vide order dated 16th September, 2016.
(ix) After taking over as the Bankruptcy Trustee in respect of the estate of the defendant no.1, the plaintiff conducted an investigation in India and around November, 2017, the plaintiff came to know that the defendant no.1 was the owner of the following properties in India:
a. The ground floor of a building on a land bearing no. 216, in Block 172, situated in Jor Bagh, New Delhi ('Property No.1') with valuation of approx. INR 8,37,00,000/-; and,
b. One-fourth (1/4th) undivided share in the first floor of a building on a land bearing number no. 216, in Block 172, situated in Jor Bagh, New Delhi ('Property No.2') with valuation of approx. INR 2,09,25,000/-. (The Property 1 and Property 2 shall collectively be referred to as the 'suit properties')
(x) The Property No.1 was purchased by the defendant no.1 vide a registered Sale Deed dated 8th July, 2002 and the Property No.2 was inherited by the defendant no.1 from his mother, who died intestate on 11th February, 2010.
(xi) Upon receipt of the Acceleration Notice on 12th November, 2015, apprehending that his aforesaid properties may be attached by the Tokyo District Court, the defendant no.1 to defraud BTMU and other creditors and in collusion with the defendant no.2, executed in Japan, (i) a Special Power of Attorney dated 17th November, 2015 in favour of his relative, Mr. Shitiz Sharma in respect of Property No.1, and (ii) a Special Power of Attorney dated 17th November, 2015 in favour of his sister, Mrs. Renu Gaur in respect of Property No.2 (collectively be referred to as the 'SPAs')
(xii) On the basis of the aforesaid SPAs, Property No.1 was transferred in favour of the defendant no.2 vide registered Gift Deed dated 23rd November, 2015 and the registered Relinquishment Deed dated 8th January, 2016 was executed, along with other siblings, in respect of Property No.2 in favour
The judgment emphasizes the need for expert opinion on foreign law, respect for foreign judgments, and the maintainability of commercial suits under the Commercial Courts Act.
Courts can respect foreign bankruptcy judgments, but they must also adhere to local laws on fraud and property transfer standards.
The court affirmed that disputes arising from agreements related to property used for trade fall under the jurisdiction of Commercial Courts, emphasizing the need for factual evaluation in limitation....
Point of Law : There is no reason where Indian courts should grant them protection; there should not be any discrimination between foreign creditors and domestic creditors in cross border insolvency ....
Jurisdiction remains valid for summary suits even when agreements are executed in foreign jurisdictions if defendants admit liability and have local connections serving as a basis for cause of action....
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