State Bank of India & Ors v Vijay Mallya

A foreign judgment will create an issue estoppel only where the relevant issue was actually and necessarily determined after full contestation and by a clear decision. Particular caution is required where the foreign court’s terminology and procedures differ from those of the English court. A general reference to security, priority or enforcement does not establish security in the English insolvency-law sense.

The doctrine preventing approbation and reprobation requires more than inconsistent positions. The court must assess the circumstances, including whether the earlier position secured a judicial advantage or whether permitting the later position would cause unfairness or abuse of process. A creditor may waive security where no relevant statutory or public-policy prohibition is established.

The Indian banks obtained a judgment from the Indian Debts Recovery Tribunal against Dr Mallya under a personal guarantee. That judgment was registered in England and formed the basis of a bankruptcy petition.

The Chief ICC Judge held that the banks were secured creditors by estoppel arising from the Indian judgment and permitted amendment of the petition to record a waiver of security. A later bankruptcy order followed after the judge rejected challenges based on conditional recoveries and disputed interest.

The banks appealed the security finding. Dr Mallya sought permission to appeal the amendment decision and the bankruptcy order. The central issues were whether the Indian judgment clearly and necessarily determined that the banks held English-law security, whether waiver was contrary to public policy or barred by estoppel, and whether the petition debt remained due.

1. Security appeal allowed. The statutory references to security in the Insolvency Act 1986 and the Insolvency Rules concerned security in the English-law sense: rights exercisable against property in which the debtor had an interest, capable of securing payment ahead of other creditors. A guarantee and negative pledge did not, without more, create that security.
2. The DRT judgment did not clearly determine that Dr Mallya had granted such security. Its references to charges, priority, guarantees and enforcement were ambiguous. The relevant proceedings principally concerned the banks’ guarantee claim, security granted by other defendants, and the effect of negative pledges against later pledges. The issue was not shown to have been actually in issue between Dr Mallya and the banks or necessary to the DRT’s decision.
3. Applying the caution required by Good Challenger Navegante SA v Metalexportimport SA, the court held that the necessary full contestation and clear decision were absent. The Singh judgment was not final and was relied on only as evidence of knowledge, not as the source of an issue estoppel. The approbation and reprobation argument also failed because the banks had not clearly adopted an inconsistent position, and no unfair advantage, detriment or abuse of process was established.
4. The public-policy challenge to waiver failed. A general public interest in responsible lending or recovery of public money did not establish that waiver was prohibited. The burden lay on Dr Mallya to identify the relevant public interest and show how waiver contravened it. Permission to appeal on the amendment issues was refused.
5. The challenges to the bankruptcy order also failed. The restored assets and the banks’ bond undertakings were linked. The banks were entitled to treat the recoveries as conditional and the petition debt as unpaid. Applying Smith v Ian Simpson, the receipt was not unconditional payment. The unserved interest challenge did not require dismissal or adjournment, and the bankruptcy order therefore stood.

• High Court, Chancery Division: Chief ICC Judge Briggs held that the banks were secured creditors by estoppel and permitted amendment of the petition: [2020] EWHC 96 (Ch).
• High Court, Chancery Division: The Chief ICC Judge permitted amendment to record waiver of security: [2021] EWHC 1312 (Ch).
• High Court, Chancery Division: A bankruptcy order was made after rejecting arguments concerning conditional recoveries and interest: [2021] EWHC 2260 (Ch).
• High Court, Chancery Division on appeal: The security appeal was allowed. Permission to appeal on the amendment and bankruptcy-order issues was refused. The bankruptcy order remained in force.