Katra Holdings Ltd v Standard Chartered Bank (Mauritius) Ltd (Mauritius)

An applicant seeking to set aside a statutory demand must show an arguable genuine and substantial dispute about whether the debt exists or is due. The court does not decide the merits, but supporting material is required and bare assertion is insufficient. Under the Code Civil Mauricien, enforcement may be refused for an unlawful cause involving domestic illegality, good morals or public policy. Public policy engages international comity where enforcement would involve a serious breach of foreign law. Illegality in performance is insufficient unless it was necessary to, or intended by, the transaction. A creditor’s retention of security does not itself bar a statutory demand. After refusal to set aside, immediate winding up is discretionary and depends on the circumstances.

Katra Holdings Ltd appealed against a winding-up order made by the Bankruptcy Division of the Supreme Court of Mauritius after Standard Chartered Bank (Mauritius) Ltd served a statutory demand for repayment of a US$20 million facility. The Court of Appeal upheld the order.

The appeal concerned the refusal to admit a late Enforcement Directorate order, whether alleged breaches of Indian regulatory law created a substantial dispute about enforceability of the debt, whether the Bank’s alleged security required the statutory demand to be set aside, and whether the Company could be wound up immediately without a further winding-up petition. The central issues were the scope of the statutory-demand jurisdiction under the Insolvency Act 2009 and the effect of foreign illegality on enforcement under Mauritian law.

Lord Hodge and Lord Briggs, giving the joint judgment, dismissed the appeal and lifted the stay on the winding-up order.

1. Fresh evidence. The Board admitted the Enforcement Directorate order de bene esse and concluded that it did not affect the enforceability issue. It therefore did not need to determine whether the Court of Appeal had acted procedurally fairly in refusing to hear the fresh-evidence motion.
2. Substantial dispute and foreign illegality. The applicant had to provide material supporting an arguable genuine and substantial dispute. The court was not required to resolve the merits, but could assess the evidence robustly and reject bare assertion. Articles 1131 and 1133 of the Code Civil Mauricien required consideration of the obligations and the determining purpose of the contract. The loan was not prohibited by Mauritian law and its purpose was not contrary to good morals. By analogy with Ralli Bros v Compañia Naviera Sota y Aznar [1920] 2 KB 287, Foster v Driscoll [1929] 1 KB 470 and Regazzoni v K C Sethia (1944) Ltd [1958] AC 301, public policy was engaged only if enforcement would breach international comity through serious foreign illegality. The alleged failure to obtain RBI permission was not shown to be necessitated by, or intended under, the Facility Agreement or Escrow Agreement. No substantial dispute was established.
3. Security. A creditor’s possession of security did not by itself prevent service of a statutory demand. The Company had not shown that the land title deeds or TMB shares constituted sufficiently valuable and readily realisable security. The new argument based on a justice-based discretion under section 181(4)(c) was not admitted because it required factual investigation and had not been developed below. The Board nevertheless recognised that such a discretion might apply where a creditor improperly pressured a solvent debtor while refusing to realise adequate security, subject to fair notice and opportunity to respond.
4. Immediate winding up. The choice under section 181(6)(a)(ii) between requiring a petition and making an immediate order was discretionary. There were no rigid categories. A final opportunity to pay and the participation of other stakeholders might favour a petition; risk to assets or wasted time and expense might favour an immediate order. Here the debt had been outstanding for over seven years, no intention to pay had been shown, and no other creditors were identified. The immediate order was therefore justified.

1. Privy Council. In [2024] UKPC 8, the appeal was dismissed. The stay on the winding-up order was lifted.
2. Supreme Court of Mauritius, Civil Appeal Division. The Court of Appeal upheld the Bankruptcy Court’s refusal to set aside the statutory demand and dismissed the Company’s appeal.
3. Supreme Court of Mauritius, Bankruptcy Division. Mungly-Gulbul J refused to set aside the statutory demand and ordered the Company’s immediate winding up under section 181(6)(a)(ii) of the Insolvency Act 2009.