Skipping justice

Embattled tycoon Vijay Mallya has failed in his latest battle in the English High Court. An Indian judgment against him can now be enforced in the UK and a worldwide freezing order stands. Paul Gair and Nick Curling of UK law firm TLT, who represented 13 Indian banks in the matter, discuss the case’s significance

Vijay Mallya needs little introduction. He is one of a growing number of Indian business executives who face criminal charges relating to fraud and money laundering in respect of loans to their companies and who have since left India. Similar allegations were made against Mehul Choski and Nirav Modi, with the latter understood to have sought indefinite leave to remain in the UK, although his current whereabouts is unclear.

The recent judgment of the English High Court on 8 May in State Bank of India & Others v Dr Vijay Mallya & Others, attracted widespread attention in India’s media. The decision means that a consortium of 13 Indian banks can now enforce a judgment of an Indian debt recovery tribunal (DRT) in England and Wales.

The banks had initiated proceedings at the DRT in Bengaluru in June 2013 for a debt owed by Kingfisher Airlines, which ceased operations in 2012, that Mallya had personally guaranteed. The DRT granted judgment in their favour in January 2017 for ₹62 billion (US$919 million) plus interest from the date of issue.

Vijay Mallya has been in the UK since March 2016, where he is fighting extradition back to India to face criminal charges. Shortly before leaving, he transferred US$40 million to his children, which he had received from Diageo, the UK-based producer of Johnnie Walker scotch and Smirnoff vodka, as part of a severance package when he stepped down as chairman of United Spirits. He was subsequently, in light of the transfer, found in contempt of an earlier order of Karnataka High Court preventing him from disposing of assets.

In November 2017, the banks obtained an order from the English High Court registering the DRT judgment in England and Wales. A registration order is the English court’s way of recognizing a foreign court’s judgment to allow enforcement within the English jurisdiction. At the same time, the banks also obtained a worldwide freezing order (WFO) against Mallya’s assets. This prevents him from removing any assets from England and Wales, or from disposing of, dealing with or diminishing the value of his assets in or outside this jurisdiction up to the value of £1.1 billion (US$1.5 billion).

Mallya applied to have the registration order set aside or alternatively for enforcement to be stayed pending appeals in India. He also applied to have the WFO discharged. Following a two-day hearing in April 2018, the court dismissed both applications. The registration order became immediately enforceable and the WFO remains in place.

New precedent

This case is the first reported instance of a DRT judgment being registered in England and Wales. This decision will make it far easier to register such judgments in the future, enabling enforcement to be taken against assets in the jurisdiction but also against individuals who are residing in the UK (for example, through a WFO).

Upon registration, the full range of enforcement options that are available to any judgment creditor in the UK will become available, including: writs of control, where a high court enforcement officer can seize and sell moveable property; third party debt orders, where a third party that owes money to the judgment debtor is ordered to pay it to the judgment creditor; charging orders, which provide enforceable security over immovable property and company shares; and bankruptcy, with the appointed trustee in bankruptcy able to realize assets of a bankrupt judgment debtor worldwide.

The registration order was made under UK’s Foreign Judgments (Reciprocal Enforcement) Act 1933. The 1933 act applies to India through the Reciprocal Enforcement of Judgments (India) Order, 1958. Paragraph 4 of the 1958 order states that the 1933 act applies to the Supreme Court, all high courts and district courts and “all other courts [including tribunals] whose civil jurisdiction is subject to no pecuniary limit providing that the judgment sought to be registered … is sealed with a seal showing that the jurisdiction of the courts is subject to no pecuniary limit”.

While accepting that the DRT had no (upper) pecuniary limit, Mallya argued that the DRT judgment itself did not satisfy the criteria because the seal did not show that there was no pecuniary limit to the DRT’s jurisdiction, nor did the DRT judgment say as such in clear words. Mallya also said that a letter obtained by the banks from the DRT’s presiding officer confirming there was no pecuniary limit and bearing the DRT seal was not part of the judgment and there were procedural defects in the manner it had been issued in India.

The court applied a purposive approach to the interpretation of the 1933 act and 1958 order, which involved considering both the literal meaning of the text and the context of the surrounding provisions, and any clear discernible legislative purpose. In doing so, it held that the clear purpose of the 1958 order was to extend the reciprocal enforcement regime to appropriate Indian courts and it would be wrong to take an unduly narrow or technical approach.

Mallya also argued that a judgment of the DRT was not capable of enforcement outside of India because it was only enforceable through the recovery certificate by the DRT recovery officer. The court firmly rejected this argument, saying that this was simply the means of enforcement in India and had no bearing on the ability of the banks to enforce extra-territorially.

The willingness of the English courts to give effect to reciprocal enforcement arrangements is positive for creditors looking to enforce their Indian judgments in the UK. Substance should triumph over form, especially where a challenge to registration is based on technical, administrative arguments that the foreign court is unlikely to be aware of when issuing a judgment. That said, it would be sensible for claimants to ask the DRT to include confirmation of the lack of pecuniary limits in its judgment if there is any chance that enforcement action may be taken in the UK.

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Application of court’s discretion

Mallya asked the court to exercise its discretion under the 1933 act to stay enforcement of the registration order as he was appealing to the Debt Recovery Appeal Tribunal (DRAT). He also argued that a stay should be granted pending the outcome of prior proceedings he had commenced in Bombay High Court challenging the validity of the personal guarantee.

Mallya had lodged an appeal some 212 days after the deadline, together with an application for condonation of that delay. That appeal was struck out due to numerous unremedied defects. Mallya then issued an application to restore the appeal, together with a further application for condonation of a delay in issuing that application. The DRAT ordered Mallya to deposit half of the judgment sum as a precondition to considering the restoration application. He failed to do so and instead issued a petition to Karnataka High Court to review the DRAT’s order.

The English court declined to stay enforcement on the basis that there was no active or pending appeal until Mallya had successfully applied to have his appeal restored. Nor was there any entitlement to appeal, as the prescribed time limit for appealing had passed, and no permission to appeal out of time had been granted.

The court also said that Bombay High Court proceedings did not amount to an appeal for the purposes of the 1933 act. They were separate proceedings and there was no compelling evidence that Mallya would succeed.

The English court’s willingness to see through a debtor’s attempts to delay enforcement through satellite applications and appeals is a positive outcome for Indian judgment creditors looking to enforce their judgment in the UK. Even if there is a genuine appeal pending, the English court will only exercise its discretion to stay enforcement in exceptional circumstances.

Obtaining a freezing order

A WFO is an injunction granted by English courts if there is evidence of a real risk that a judgment will go unsatisfied because the defendant is likely to dissipate their assets or deal with them to make enforcement harder. An application should be made without delay or it risks suggesting there is no genuine belief of a risk of dissipation. As a freezing order is usually obtained on a without-notice basis, the applicant has a duty to bring all materially relevant matters, positive and negative, to the court’s attention.

Mallya applied to have the WFO discharged on the grounds that there was no serious risk of dissipation, delay and material non-disclosure. He argued that the banks could and should have applied for a WFO no later than March 2016 because they had indicated their belief at that time that he was going to England to dissipate his assets, meaning an application could have been made under section 25 of the UK’s Civil Jurisdiction and Judgment Act 1982. That section entitles an applicant to seek certain types of relief from the English court in support of proceedings in foreign jurisdictions.

The court accepted the banks’ evidence that they were not aware they could have applied to the English court for a WFO before they had secured the DRT judgment, or applied to have it registered with the High Court of England and Wales. It held that a genuine misunderstanding as to remedies available did not undermine the belief of a risk of dissipation. It was also relevant that while they had obtained asset restraint orders in the Indian proceedings by July 2017, when the Indian Supreme Court had declared Mallya to be in contempt of such orders, it was clear the Indian courts could do little by way of enforcement in Mallya’s absence.

Whether or not to grant a WFO if there has been a delay is a matter of discretion for the English courts. While the court acknowledged Mallya’s argument that the banks had limited evidence of asset dissipations during the 18 months since they had first indicated their concern, this was significantly outweighed by a combination of other factors including:

• A lack of genuine offers to settle: The court agreed the banks had reasonable grounds to consider Mallya’s offers of settlement to be unsatisfactory;
• Contempt findings relating to the dissipation of assets: The English court refused to look behind the Indian court’s decision as it appeared reasonable;
• The criminal allegations faced by Mallya: It was held that where the charges brought against him followed a detailed criminal investigation, and where there had been at least two Indian court hearings in which provisional asset attachment orders were confirmed after a review of evidence, it could not be said that the allegations were untried or untested even if a final decision was not reached; and
• Complex ownership structures: Mallya held certain assets through complex offshore structures, which was not evidence of a risk of dissipation in itself but could be taken into account were there other factors pointing to such a risk.

While the English courts will weigh all relevant factors in the balance when deciding whether or not to grant or continue a WFO, Indian claimants are advised not to wait until they have obtained a final order or judgment in India in those proceedings before applying for a WFO against defendants resident in the UK.

Interim relief by way of a WFO can be obtained under section 25 of the Civil Jurisdiction and Judgment Act 1982. This is an important option where a debtor has left India, has assets in the UK or lives within the jurisdiction of English courts. It is not necessary to show that proceedings in India have been commenced against the debtor; section 25 empowers the English court to grant relief where it is satisfied that proceedings are to be commenced.

The English courts will, however, expect proceedings to commence within a reasonable period of time and may require the claimant to give an undertaking to do so by a certain date. A claimant can therefore obtain the protection of a freezing order where the substantive dispute may be relatively new and/or complex (for instance, in the above-mentioned example of Nirav Modi), and they are still finalizing the necessary documents to issue the claim in India.

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