Madras High Court Orders Winding Up Of SpiceJet, Grants Three-Week Stay For Appeal

The Madras High Court has ordered winding up of SpiceJet Ltd. on grounds that it failed to clear debt owed to Credit Suisse AG.

The order by the single-judge bench of Justice R Subramanian directed the official liquidator to take over the assets of the airline for liquidation but granted a three-week stay at the request of the company to appeal against the order.

The dispute leading to the order arose from an aircraft maintenance agreement that SpiceJet entered with Switzerland-based SR Technics in 2011.

SR Technics later entered into a financing agreement with Credit Suisse granting them the right to receive payments for the invoices raised against SpiceJet for maintenance and repair purposes.

In total, SR Technics raised seven invoices in 2013 but claimed it didn't receive the payment from SpiceJet.

The airline said the alleged debt owed to SR Technics wasn't legally enforceable and there can't be a winding up order under the Companies Act, 1956.

SpiceJet also argued that the relevant documents in the case weren't properly stamped and couldn't be relied upon to establish a debt.

It also told the court that SR Technics didn't have a valid licence to carry out aircraft maintenance services and enforcing their claims would violate public policy.

Section 433 of the Companies Act allows for winding up of a company if it's found that a company has been unable to pay its debts.

Section 434 of the act explains when a company could be considered to have been unable to pay its debts. Requirements under this section include:

• An outstanding amount of more than Rs 500.

• A neglect on the part of the company to pay the money within three weeks of the written notice being delivered at the registered office of the company.

The high court order noted that there is a three-part test that has to be applied by the courts when faced with a question of winding up for failure to clear debt.

The points to be considered by a court when dealing with this question include:

• Whether the defence of the debtor company is in good faith and one of substance.

• The defence of the company is likely to succeed on point of law.

• The debts present prima facie proof of the facts on which the defence depends.

In the present case, the bench said, the certificates of acceptance that were issued by SpiceJet would qualify as a categorical admission of liability.

The question of stamping or sufficiency of stamping isn't relevant to the scope of the current proceedings, the bench held.

The company, the bench said, miserably failed to satisfy the three-pronged test suggested by the Supreme Court and rendered itself liable to be wound up for its inability to pay its debt, the order said.

Stay On Airline's Request

However, the court granted a stay on the further proceedings pursuant to the order for a period of three weeks on SpiceJet's request. The high court made the stay order conditional to SpiceJet depositing $5 million within a period of two weeks.

The company is likely to file an appeal against the order before the division bench of the high court. It said in a statement it has a good case on merits and is hopeful of having a favourable outcome in the appeal.