State Bank Of India & Ors v Mallya (2)

The petitioners sought permission to amend a creditor's petition to disclose and state willingness to relinquish security for the benefit of all creditors in the event of an adjudication of bankruptcy. The court held that the amendment was permissible: neither the relevant Indian statutes (including the Recovery of Debts and Bankruptcy Act 1993 and the Provincial Insolvency Act 1920) nor Indian public policy or common-law principles prevented a secured creditor from relinquishing security. The judge rejected arguments based on res judicata, estoppel and approbation and reprobation, finding no binding Indian decision or legal bar that would prevent the petitioners lawfully relinquishing security. The court therefore granted permission to amend the petition to a form reflecting the petitioners' willingness to give up any such security on bankruptcy.

Background and parties: The petitioners are a group of Indian banks and a financial institution who registered a judgment obtained before the Debt Recovery Tribunal of Bangalore as a foreign judgment against Dr Vijay Mallya. The registered judgment formed the basis of a creditor's petition presented on 11 September 2018. Earlier rulings by this court had identified that the petition failed to disclose security and had adjourned to permit amendment.

Nature of application: The present application sought permission to amend the petition so as to comply with section 269 of the Insolvency Act 1986 by including a statement that the petitioners, if a bankruptcy order is made, will relinquish any security they hold for the benefit of all creditors.

Issues framed:

• whether Indian law or public policy prevents the petitioners from relinquishing security;
• whether prior Indian proceedings and judgments give rise to res judicata or estoppel preventing relinquishment;
• whether permitting the amendment would allow the petitioners to approbate and reprobate or deprive the respondent of a defence.

Evidence and procedure: The court heard expert evidence from two retired Indian Supreme Court Justices on Indian law and directed their attendance for cross-examination. The parties filed written and oral submissions and the court reviewed the relevant provisions of the Recovery of Debts and Bankruptcy Act 1993 and the Provincial Insolvency Act 1920, together with earlier English authority on creditor petitions.

Reasoning and conclusions: The court preferred the evidence that the statutory scheme in India contemplates and permits a secured creditor to relinquish security (notably section 47(2) PIA 1920 and the provisions of the RDBA concerning creditor statements). There was no statutory or common-law rule identified that categorically barred relinquishment, and the priority provision (section 31B RDBA) did not operate as a non obstante bar to waiver. The judge found that arguments based on res judicata and estoppel failed because the prior Indian orders and submissions did not finally decide the same issues in this application and there was no factual basis that the respondent relied on representations to his detriment. The court concluded there was no approbation and reprobation, and no overriding public policy preventing relinquishment. Accordingly the court permitted a suitably worded amendment to the petition confirming the petitioners' willingness to give up any security on a bankruptcy order.

Permission to amend the petition was granted. The court held that neither the cited Indian statutes nor public policy prevent secured creditors from relinquishing security; res judicata, estoppel and approbation and reprobation arguments did not bar the amendment. The court directed the petition be amended to state that the petitioners, having the right to enforce any security, are willing in the event of a bankruptcy order to give up any such security for the benefit of all creditors.