State Bank Of India & Ors v Mallya (2)

A secured creditor may amend a bankruptcy petition to state that it is willing to relinquish security for the benefit of creditors. The absence of an express statutory provision permitting relinquishment does not create a prohibition. Priority rights conferred on secured creditors do not, without more, engage a public policy preventing waiver. Earlier assertions of security in foreign proceedings do not necessarily create res judicata, estoppel, or an inconsistency preventing later relinquishment. The court must distinguish statutory provisions protecting the public from provisions protecting a creditor’s private priority. Where the evidence establishes that relinquishment is legally available, permission to amend should be granted in an appropriate form.

The petitioners sought permission to amend a bankruptcy petition based on a registered Indian judgment debt exceeding £1 billion. An earlier judgment held that the petition failed to disclose security and permitted amendment to comply with section 269 of the Insolvency Act 1986.

The respondent argued that the petitioners could not truthfully state that they were willing to relinquish security because Indian law, public policy, res judicata, estoppel, and the rule against approbation and reprobation prevented them from doing so. The court heard expert evidence on Indian law, principally concerning the Recovery of the Debts and Bankruptcy Act 1993 and the Provincial Insolvency Act 1920.

1. Permission to amend. The proposed amendment was permissible in substance. Its wording could be revised to follow the language of section 269 of the Insolvency Act 1986.
2. Statutory position. Nothing in the Recovery of the Debts and Bankruptcy Act 1993 or the Provincial Insolvency Act 1920 prevented a secured creditor from relinquishing security. Section 47(2) of the Provincial Insolvency Act 1920 expressly contemplated relinquishment for the general benefit of creditors. Section 31B of the Recovery of Debts and Bankruptcy Act 1993 conferred priority but did not fetter the creditor’s ability to relinquish that priority.
3. Public policy. The authorities relied on concerned statutory restrictions, non obstante provisions, jurisdictional objections, or provisions protecting the public or a protected class. They did not establish a general rule preventing waiver of security rights. Section 31B protected secured creditors’ bargain rather than the public at large.
4. Res judicata. The Indian judgments and submissions did not determine the issue on this application. The requirements identified in The Sennar (No 2) [1985] 1 WLR 490 were not satisfied because the later issue was not the same issue decided previously. The principle was explained in Allsop v Banner Jones [2020] EWCA Civ 7.
5. Estoppel and approbation. There was no evidence that the respondent relied on a representation that the petitioners could not relinquish security. Acting on security rights in earlier proceedings was not inconsistent with relinquishing them in the event of bankruptcy.
6. Permission was granted for the petition to state that the petitioners, having the right to enforce any security held, were willing, if a bankruptcy order were made, to give up that security for the benefit of all the bankrupt’s creditors.