State Bank of India & Ors v Mallya

A foreign judgment registered in England may establish that a creditor holds security for the purposes of a bankruptcy petition where the foreign court has determined that the creditor has enforceable rights over the debtor’s property. Security need not transfer ownership. A petition that fails to disclose security contrary to section 269 of the Insolvency Act 1986 is defective, but dismissal is not automatic. The court should consider the consequences of the breach, the parties’ conduct and all the circumstances. The petition may be amended and adjourned where there is credible evidence of a reasonable prospect that the debt will be paid or compromised within a reasonable period.

The petitioners, principally Indian banks, sought a bankruptcy order against Dr Vijay Mallya on the basis of a judgment debt registered in England under the Foreign Judgments (Reciprocal Enforcement) Act 1933. The debt arose from a personal guarantee relating to company lending. Dr Mallya resisted the petition on the grounds that the banks were secured creditors who had failed to disclose their security, and that Indian settlement proceedings created a reasonable prospect of compromise.

The court considered whether security found by the Indian Debt Recovery Tribunal and other Indian tribunals was security for the purposes of section 269 of the Insolvency Act 1986, and whether the petition should be dismissed or adjourned.

1. The petition was based on a final foreign judgment registered in England. Under section 2 of the Foreign Judgments (Reciprocal Enforcement) Act 1933, the registered judgment had the same force and effect for execution as an English judgment. Applying Rule 48 of Dicey, Morris & Collins, the DRT judgment was conclusive as to security, a matter necessarily adjudicated upon. The findings were reinforced by the PMLA tribunal’s description of the banks as secured creditors.

2. Security in English law includes rights exercisable against property in which the debtor has an interest, obtained to enforce the debtor’s obligation. The Indian findings gave the banks priority over proceeds from specified assets and restricted dealings with those assets. They therefore constituted security over at least some of Dr Mallya’s property, even though the judgment also concerned other parties’ assets. The court applied Bristol Airport Plc v Powdrill [1990] 1 Ch 744.

3. The banks had breached section 269 of the Insolvency Act 1986 and Rule 10.9 of the Insolvency Rules 1986 by failing to state their security. The breach did not require automatic dismissal. Following Barclays Bank Plc v Mogg [2004] BPIR 259 and considering Wave Lending Ltd v Parmar [2017] EWHC 681, the court held that amendment could cure the defect.

4. In exercising the discretion under section 266(3) of the Insolvency Act 1986, the court considered the consequences of the breach, the parties’ conduct and all the circumstances. The security did not cover the whole debt or necessarily all the debtor’s assets, the petition was capable of amendment, and prejudice was limited.

5. The court also applied the principle that an adjournment requires credible evidence of a reasonable prospect of payment or compromise within a reasonable period. The Indian settlement proceedings were genuine and had more than a fanciful prospect of success. The petition was adjourned for amendment and time to pay, with a reasonable period of at least six months. No decision was made on the separate abuse argument or on whether the whole debt was secured.

First-instance decision. The bankruptcy petition was adjourned for amendment and for time to pay or compromise the debt.