Judgment :- In these three company petitions while the petitioner is common the respondents are different. Since the facts in all these cases are similar and the points arising are identical, they are heard and being disposed of together. 2. These petitions are filed under Sections 433, 434(1)(c) and 439(1)(b) of the Companies Act, 1956 (for short, ‘the Act’) for an order to wind up the respondents for non-payment of the alleged debts due to the petitioner. For convenience, Company Petition No.219 of 2014 is treated as the lead case and the facts therein are proposed to be referred in this judgment. 3. The undisputed facts of the case are that the petitioner is an investment management firm headquartered at Geneva, Switzerland. It is a leading Investment Manager in inclusive finance. The petitioner manages or provides investment management advice and finance to microfinance institutions all over the world, including India. The petitioner was earlier called ‘Dexia Micro Credit Fund’ and with effect from 31.07.2012 its name has been changed as ‘BlueOrchard Microfinance Fund’. 4. The respondent, a company incorporated under the Act, is involved in the microfinance business in India with the aim of providing loans to small farmers, small businessmen and agriculturists. Its business activities spread over in the two States of Andhra Pradesh and Telangana with its Headquarters at Hyderabad. 5. During the year 2009, the respondent approached the petitioner for arranging financial help to expand its business. It has entered into a Master Facility Agreement dated 09.10.2009 (for short, ‘Facility Agreement’) with the Citibank India, in pursuance of which the latter provided a term loan of (INR) Rs.25,92,00,000/- to the respondent. As per the Facility Agreement, the respondent has executed a deed of hypothecation as per the Indian Laws on 9.11.2009 in favour of Citibank India. The Citibank International provided Standby Letter of Credit (for short, ‘SBLC’) in favour of Citibank India on 13.10.2009 on the basis of a deed of indemnity dt.11.12.2007 executed by the petitioner in favour of Citibank International. Under the said deed of indemnity the petitioner has agreed, on demand by Citibank International, to pay and discharge in full, all obligations and liabilities incurred by the latter with respect to any guarantee or similar facilities made available by it to such entities as acceptable to it. Under the said deed of indemnity the petitioner has agreed, on demand by Citibank International, to pay and discharge in full, all obligations and liabilities incurred by the latter with respect to any guarantee or similar facilities made available by it to such entities as acceptable to it. Besides the deed of indemnity executed by it, the petitioner has also issued a reliance letter dt.5-10-2009 in favour of Citibank N.A. London Branch (which is an affiliate of Citibank International) and Citibank India. In pursuance thereof, the petitioner has provided a guarantee to Citibank N.A. London Branch and Citibank India in connection with the loan being made available by Citibank India to the petitioner. The petitioner has also provided cash collateral to the extent of (USD) $6,000,000 [approximately INR Rs.26 crores] as on the date of Facility Agreement to enable the Citibank International to make payment to Citibank India in the event of requirement under the SBLC. 6. With this background, the petitioner has pleaded as under. In connection with the SBLC and in consideration of the petitioner having supported the term loan provided to the respondent, the latter has executed a Guarantee Fee Agreement dated 7.10.2009 in its favour. Under this agreement the respondent has agreed to pay a fee to the petitioner at the prescribed rate set out therein in consideration of the latter providing guarantee to Citibank International with respect to the obligations of the respondent under the Facility Agreement and under the said agreement the respondent categorically agreed to reimburse the petitioner in case it was required to pay any amount to Citibank International under the deed of indemnity and the SBLC referred to above. 7. That initially the respondent was servicing its debt in accordance with the terms of the Facility Agreement. But, however, in 2011 a number of events of default have occurred under the terms of the Facility Agreement and as a result thereof, the respondent breached its payment obligations and other contractual obligations arising under the Facility Agreement and hence the Citibank India accelerated and recalled the entire outstanding loan that was due and payable under the terms of the Facility Agreement along with accrued interest from the respondent vide letter dated 15.09.2011. As per the said letter, the respondent was required to repay an amount of (INR) Rs.26,01,69,073/- which was the total amount due and outstanding under the terms of the Facility Agreement, within the prescribed period stipulated therein to the Citibank India. As the said amount was not paid by the respondent within the prescribed time period, the Citibank India invoked the SBLC and received payment from Citibank International in an amount of (INR) Rs.26.00 crores and that the said amount was appropriated by Citibank India towards the amount due and outstanding from the respondent under the terms of the Facility Agreement. Consequent on such appropriation, the obligations of the respondent towards Citibank India under the Facility Agreement stood discharged. 8. That in order to comply with its obligations under the SBLC invoked by the Citibank India, Citibank International in turn appropriated the cash collateral placed by the petitioner as security for the obligations of the former under the SBLC. In other words, through Citibank International the petitioner has funded the Citibank India for providing loan to the respondent and that therefore the respondent has incurred the liability to the petitioner in accordance with the terms of the Guarantee Fee Agreement. 9. That in view of its facing grave financial difficulties, the respondent has entered into a Corporate Debt Restructuring Scheme (CDR Scheme) under the extant laws and regulations with its creditors in June 2011 under which its creditors agreed for restructuring of the debts owed to them by the respondent, that the respondent, vide its letter, dated 9.3.2012, addressed to the Reserve Bank of India (RBI) unequivocally acknowledged its liability to repay the amount of Rs.25,91,99,665/- towards principal and Rs.9,69,225.73/- towards interest to the petitioner and sought its permission to pay such amount to the petitioner. The respondent also referred to the letter issued by the petitioner on 14.2.2012 demanding payment of the outstanding amount. In response to the said letter, the RBI vide its letter dated 28.3.2012 informed the respondent that it may approach the lenders under the CDR Scheme for inclusion of the petitioner’s debt therein. The respondent also referred to the letter issued by the petitioner on 14.2.2012 demanding payment of the outstanding amount. In response to the said letter, the RBI vide its letter dated 28.3.2012 informed the respondent that it may approach the lenders under the CDR Scheme for inclusion of the petitioner’s debt therein. In reply, vide letter dt.2.11.2012, the respondent has once again acknowledged its indebtedness to the petitioner and requested the RBI to accede to the petitioner’s request to be included in the CDR Scheme and as the RBI has declined the said request, the petitioner could not become a part of the CDR Scheme. 10. That as the respondent failed to discharge its debt despite its acknowledging the same, the petitioner caused a statutory notice issued on the former under Sections 433 and 434 of the Act on 28.6.2014 calling upon it to repay the sum of Rs.26,01,69,073/- within 21 days from the date of receipt of the notice and the same was acknowledged by the respondent. In its reply dated 18.7.2014, the respondent has informed the petitioner’s counsel that it is currently subject to the CDR Scheme and that no payments can be made to the petitioner without the consent of the lenders forming part of the CDR Scheme. With the above pleadings, the petitioner has prayed for an order to wind up the respondent for non-payment of the admitted debt due to it. 11. With the above pleadings, the petitioner has prayed for an order to wind up the respondent for non-payment of the admitted debt due to it. 11. The respondent filed a counter affidavit wherein it has inter alia pleaded that the Government of Andhra Pradesh introduced the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending), Act, 2010, that with the advent of that Act the microfinance industry as a whole in the State of Andhra Pradesh was severely affected and recovery of loans provided by the micro finance institutions was severely hampered, that the Microfinance India’s State of the Sector Report 2011 published by SAGE Publications India Private Limited shows that recovery rate of loans advanced by microfinance institutions fell to less than 10 per cent after the coming into force of the said Act and that the liquidity crunch affected client bases, profitability and sustainability of microfinance institutions, that as a result, the operational self-sufficiency of microfinance institutions based in the State fell from 150% to 40% in 2011-2012 and the loan loss provisions and the loan write-offs increased above 50% in the year 2010, that the effect of falling repayment rates of these institutions was severe and total and that at the end of October 2010, a total of about Rs.108.90 billion was outstanding in the hands of the borrowers from ten large micro finance institutions in Andhra Pradesh. 12. The respondent has admitted the facts pleaded by the petitioner to the extent of the arrangement between the parties under which the Citibank India has disbursed the loan to it, default in repayment of loan, recalling of the loan amount and Citibank India informing the respondent vide its letter dated 15.10.2011 that it had invoked the SBLC and its receiving payment from the Citibank International. The respondent has also admitted its letter dt.9.3.2012 wherein it has informed the RBI of the petitioner’s desire to join the CDR Scheme. The respondent has also admitted its letter dt.9.3.2012 wherein it has informed the RBI of the petitioner’s desire to join the CDR Scheme. It has further pleaded that in its letter dated 9.3.2012 it has sought for approval of the RBI to repay the guarantee amount to the petitioner in accordance with the terms and conditions of the CDR Scheme and that the RBI has accorded its approval asking the respondent to approach the CDR empowered group for inclusion of the said amount due to the petitioner in the CDR Scheme, that however the State Bank of Hyderabad (Authorized Dealer for Foreign Exchange), addressed a letter dt.18.11.2013 to the respondent wherein it was informed that as per the RBIs advice and as per the revised guidelines of the CDR mechanism, the lenders in foreign currency outside the country are not a part of the CDR Scheme and that as per the existing guidelines conversion of External Commercial Borrowings (ECBs) into Optionally Convertible Cumulative Redeemable Preference Shares (OCCRPS) is not allowed and that therefore the request of the respondent to issue OCCRPS to the petitioner was rejected. 13. The respondent has referred to its reply dated 18.7.2014 issued to the petitioner’s legal notice and pleaded that it was stated therein that any payment made by it during the pendency of CDR Scheme is subject to prior consent of the monitoring institution and the CDR empowered group and that it has also called upon the petitioner to resolve the issues by entering into discussions between both the parties, the monitoring institution and the CDR empowered group. As regards the claim of the petitioner for payment of the loan amount recovered by the Citibank India, the counter affidavit has taken the stand that under the Guarantee Fee Agreement, the respondent is only liable to pay the petitioner the guarantee fee amount and that even if the Citibank has called back the loan liability of the respondent, its liability is confined to payment of the remaining amount of the guarantee fee. It has further averred that except in case of three acts viz., wrongful mistake, gross negligence or wilful misconduct on the part of the respondent, the petitioner is not entitled to be reimbursed the loan amount advanced by the Citibank India to the respondent. It has further averred that except in case of three acts viz., wrongful mistake, gross negligence or wilful misconduct on the part of the respondent, the petitioner is not entitled to be reimbursed the loan amount advanced by the Citibank India to the respondent. As a logical corollary, the respondent has averred, even as per the version putforth by the petitioner the respondent is not guilty of any of the above mentioned three acts referred to in the guarantee fee agreement and hence it is not legally liable to pay the loan amount recovered by the Citibank India. 14. In its reply affidavit the petitioner has reiterated its stand that the respondent is liable to pay the loan amount recovered by the Citibank India to the petitioner. While pointing out that the respondent has resorted to denial of its liability for the first time in the counter affidavit, it has referred to and relied upon letters dt.9.3.2012 and 2.11.2012 addressed by the respondent to the RBI clearly admitting its liability for payment of loan amount to the petitioner and requesting the RBI to include the petitioner in the CDR Scheme. The petitioner further pleaded that the amounts owed by the respondent to it not only include the guarantee fee under the Guarantee Fee Agreement but also the amounts appropriated by the Citibank International due to the defaults committed by the respondent in repaying the Term Loan granted by Citibank India and that as it has not denied its liability at earlier point of time, the respondent is deemed to have waived its rights, if any, to raise any defence in relation to its liability to make payment to the petitioner. The petitioner has further pleaded that de hors the Guarantee Fee Agreement, being surety, it is entitled to be indemnified by the respondent, who is the principal debtor, under Section 145 of the Indian Contract Act, 1872 (for short, ‘the Contract Act’) for whatever sum it has rightfully paid to the guarantee, i.e., Citibank International. 15. Having regard to the pleadings of the parties, the following points emerge for consideration: (i) What is the nature of the agreement between the petitioner and the respondents? (ii) Whether the respondents are indebted to the petitioner? (iii) Whether the company petitions deserve to be admitted? 16. Arguments at great length were advanced by Mr. 15. Having regard to the pleadings of the parties, the following points emerge for consideration: (i) What is the nature of the agreement between the petitioner and the respondents? (ii) Whether the respondents are indebted to the petitioner? (iii) Whether the company petitions deserve to be admitted? 16. Arguments at great length were advanced by Mr. S. Niranjan Reddy, learned counsel for the petitioner, and Mr. S. Ravi, Mr. S.R. Ashok and Mr. R. Raghunandan, learned Senior Counsel, appearing for respective respondents in these company petitions. Mr. S. Ravi has advanced his submissions both on facts and legal issues in Company Petition No.219 of 2014. Mr. S.R. Ashok and Mr. R. Raghunandan have addressed their submissions on law only as they conceded that the facts in Company Petition Nos.220 and 221 of 2014 are more or less identical to Company Petition No.219 of 2014. In Re Point No.1 17. The liability of the respondents to reimburse to the petitioner the loan amount recovered by Citibank India is dependent upon the nature of the arrangement between the petitioner on the one side and the respondents on the other. It is therefore necessary to discuss the precise arrangement between the parties with reference to the documentary evidence available on record. 18. ‘Dexia Micro Credit Fund’, predecessor of the petitioner (for short, ‘the Company’) executed a deed of indemnity on 11.12.2007 in favour of Citibank International PLC. It is recited therein that in consideration of the Bank granting or agreeing to grant guarantee or similar facilities from time to time and to issue and maintain, guarantees indemnities, bonds, undertakings, standby letters of credit or similar instruments, the company irrevocably and unconditionally indemnifies the bank from and against all demands, claims, obligations, liabilities, loss and damage (including without limitation all actions, proceedings, charges, costs, expenses, damages, taxes and duties) which the Bank may suffer or incur, or have brought or preferred against it in each case. Clause–4 of the said deed imposes an absolute obligation on the petitioner “to pay all the amounts that are covered by the deed of indemnity on the due date”. Clause–4 of the said deed imposes an absolute obligation on the petitioner “to pay all the amounts that are covered by the deed of indemnity on the due date”. Under Clause-5, the Company shall pay to the Bank from time to time on demand for the credit of such account the Bank may open for this purpose such amount or amounts as the Bank may specify as being necessary to ensure that the Collateral Balance for that Collateral Account is equal to the Minimum Collateral Amount for the Collateral Account for the time being and the company has to accordingly make cash collateral deposits. 19. In the year 2009, the respondent has approached the petitioner with a request to issue a reliance letter to the Citibank NA London and Citibank India for sanctioning and paying micro finance loan in (USD) $ 6,000,000. Accordingly, the petitioner has issued a reliance letter dt.5.10.2009 in favour of the respondent in C.P. No.219 of 2014. 20. Following issue of reliance letter, the petitioner and the respondent have entered into a Guarantee Fee Agreement. The agreement referred to the respondent entering into a facility agreement with Citibank India for grant of loans, the petitioner entering into a counter indemnity agreement dated 11.12.2007 with the Citibank International granting the latter the letter of indemnity in respect of the borrower’s obligations under the facility agreement and the purpose of entering into the Guarantee Fee Agreement between the petitioner and the respondent, namely, payment of guarantee fee for the guarantee provided by the petitioner to the Citibank International. Under this agreement, the respondent, who is described as borrower, has agreed to pay to the petitioner an annual net guarantee fee of 3.3% on the loan amount for a period of 36 months from 12th October, 2009. The agreement recites that if the borrower does not repay the amounts due under the facility agreement on the Maturity Date, the Guarantee will be extended for a maximum period of 30 calendar days following such date in which case the borrower will continue to pay Guarantee Fee, based on the number of days that have lapsed from the Maturity Date to the effective payment date. The guarantee fee agreement refers to the ‘Guarantee Agreement’ and limits the maximum amount of the guarantee given by the petitioner to (USD) $ 6,000,000 and after the period of 24 months from the date of the Guarantee Agreement, to the maximum amount of (USD) $ 3,000,000. 21. From the above discussed documents, a trilateral arrangement is clearly evident. As per this arrangement, the petitioner has executed a deed of indemnity in favour of the Citibank International under which it has indemnified the Citibank International for all the losses arising out of the facilities, guarantees, indemnities, bonds, undertakings, standby letters of credit or similar instruments issued by it to third party beneficiaries. The Citibank International in turn has executed SBLC in favour of Citibank London/Citibank India. The Citibank India has entered into a master facility agreement dt.9.10.2009 with the respondent under which the former has sanctioned and disbursed the loan to the latter based on the SBLC issued in its favour by Citibank International. In consideration of the petitioner standing as guarantor for the loan and also issue of reliance letter by the petitioner in favour of the respondent, the latter has entered into a Guarantee Fee Agreement with the petitioner. 22. The sheet-anchor of the respondents’ case is that the relationship of the parties is governed by the Guarantee Fee Agreement and that the petitioner cannot fasten any liability on the respondents other than that flows out of the said agreement. Under this agreement, pleaded the respondents, while they have agreed to pay guarantee fee as per the terms thereof for the petitioner standing as the guarantor to the Citibank International, in addition thereto, the petitioner is also entitled to reimbursement of any loss suffered by the Citibank India only in the event such loss is suffered due to a wrongful mistake, gross negligence or wilful misconduct on the part of the respondents. The respondents further pleaded that none of such acts were attributed to them by the petitioner and that therefore they are not liable to reimburse the petitioner, the loan amount recovered by the Citibank India. All the Senior Counsel appearing for the respective respondents have forcefully putforth their submissions based on this plea. 23. Countering this submission, Mr. The respondents further pleaded that none of such acts were attributed to them by the petitioner and that therefore they are not liable to reimburse the petitioner, the loan amount recovered by the Citibank India. All the Senior Counsel appearing for the respective respondents have forcefully putforth their submissions based on this plea. 23. Countering this submission, Mr. S. Niranjan Reddy, learned counsel for the petitioner, submitted that the arrangement between the petitioner and the respondents is in the nature of a guarantee agreement which is traceable to Section 126 of the Contract Act. While conceding that the right of the petitioner for reimbursement does not flow directly from the Guarantee Fee Agreement, he has contended that the Guarantee Fee Agreement was preceded by a clear and unequivocal guarantee arrangement between the parties which could be culled out from the terms of the Guarantee Fee Agreement. He has referred to and relied upon Section 126 of the Contract Act to buttress his submission that the guarantee agreement need not be in writing that it can be oral and that such oral guarantee agreement between the petitioner and the respondents is clearly evident on the admitted facts of the case. The learned counsel has also submitted that Section 145 of the Contract Act envisages an implied promise by the principal debtor to indemnify the surety, who is the petitioner in the case on hand, and that the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee. He has further submitted that the provisions of the Contract Act are not exhaustive and even in the absence of an express contract governed by the provisions of the Contract Act, the Court has to apply the principle laid down in Moule v. Garrett (1861-73) All ER Rep. 135). The learned counsel has also relied upon the judgments in Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri, (AIR 1942 Bom. 302) State Bank of India v. Moti Thawardas Dadlani (2007 (109) Bom. LR 483) and in Re Healing Research Trustee Co. Ltd. (1991 BCLC 716) to fortify his submissions. 135). The learned counsel has also relied upon the judgments in Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri, (AIR 1942 Bom. 302) State Bank of India v. Moti Thawardas Dadlani (2007 (109) Bom. LR 483) and in Re Healing Research Trustee Co. Ltd. (1991 BCLC 716) to fortify his submissions. The learned counsel further submitted that the correspondence exchanged between the respondents and the RBI clearly reveals that the former are conscious of their liability to reimburse the loan amount recovered by the Citibank India, to the petitioner and also their unequivocal admission of the debt owed to the petitioner. The learned counsel termed the respondents’ act of denial of debt as - a complete volte-face and a pure afterthought and also as commercial immorality. 24. Before undertaking further discussion on the nature of the agreement between the petitioner and the respondents, the relevant terms of the Guarantee Fee Agreement need to be noticed. The preamble of the said agreement contains three clauses which read as under: I. The Borrower has entered into a facility agreement with Citibank NA India incorporated under the laws of India, with registered office at 2 Club House Road, Chennai, 600 002, India, dated on or about 1st September 2009 (the “Facility Agreement”) pertaining to an INR loan to be granted to the Borrower of the equivalent of 6,000,000 USD (the “Loan”). II. The Guarantor has entered into an agreement with Citibank NA India dated 11 December 2007 (the “Counter-Indemnity Agreement”) granting Citibank an indemnity in respect of the Borrower’s obligations under the Facility Agreement. III. For the guarantee provided by the Guarantor to Citibank (the “Guarantee”), the Guarantor requests and the Borrower accepts to pay a guarantee fee to the Guarantor (the “Guarantor Fee”).” Clause I refers to the respondents entering into a facility agreement with Citibank India for grant of loan. Clause II refers to the counter indemnity agreement dated 11.12.2007. As rightly pointed out by Mr. S. Niranjan Reddy, the learned counsel for the petitioner, this clause is inartistically drafted as the counter indemnity agreement was not merely with reference to the loan that may be sanctioned by Citibank India to any particular agency, including any of the respondents, but it is a generic arrangement between the petitioner on one side and the Citibank International on the other. Be that as it may, the counter indemnity agreement dt.11.12.2007 constituted the fulcrum of all the subsequent arrangements leading to sanction and disbursement of loan amounts to various micro finance institutions. Clause III refers to the parties entering into the agreement, namely, for payment of guarantee fee by the borrower, i.e., the respondents to the petitioner. 25. Though no separate written agreement was reduced to writing between the petitioner on one side and the respondents on the other, the very fact that the Guarantee Fee Agreement is entered into pre-supposes the understanding of the guarantee between the petitioner on one side and the respondents on the other. Indeed, existence of such understanding of the guarantee could be culled out from the unnumbered paragraph 2 of page 2 of the Guarantee Fee Agreement, which reads as under: “For the avoidance of doubt and as agreed in the Guarantee Agreement, the liability of the Guarantor under the Guarantee shall not exceed (i) the maximum amount of 6,000,000 USD and (ii) after a period of 24 months from the date of the [Guarantee] Agreement, the maximum amount of 3,000,000 USD.” (Emphasis added) It is not the case of the respondents that the petitioner has entered into guarantee agreement with either Citibank International or Citibank India. As noted above, the petitioner has executed an indemnity agreement in favour of Citibank International and the respondents have entered into facility agreements with Citibank India. Therefore, it must be necessarily presumed that the ‘guarantee agreement’ referred in the above noted paragraph of the Guarantee Fee Agreement is a guarantee agreement between the petitioner and the respondents and even in the absence of a written agreement such agreement can be inferred on the admitted facts of the case. In this context, certain provisions of the Contract Act are worth noticeable. 26. Chapter VIII of the Contract Act deals with indemnity and guarantee. Section 124 thereof defines ‘Contract of Indemnity’ and Section 126 deals with ‘Contract of guarantee’. These provisions read as under: “124. ‘Contract of indemnity’ defined.- A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a “contact of indemnity”. 126. These provisions read as under: “124. ‘Contract of indemnity’ defined.- A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a “contact of indemnity”. 126. ‘Contract of guarantee’, ‘surety’, ‘principal debtor’ and ‘creditor’ – A ‘contract of guarantee’ is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the ‘surety’; the person in respect of whose default the guarantee is given is called ‘the principal debtor’, and the person to whom the guarantee is given is called the ‘creditor’. A guarantee may be either oral or written.” From the plain language of Sections 124 and 126 of the Contract Act, it is manifest that the ‘contract of indemnity’ involves two persons, namely, promisor and the promisee, while ‘contract of guarantee’ involves three persons, namely, surety, principal debtor and the creditor. 27. The fine distinction between the contract of indemnity and the contract of guarantee was well brought out by the Apex Court in Punjab National Bank Ltd. v. Shri Vikram Cotton Mills (1970) 1 SCC 60 ). That was a case where the loan was taken by a company from a bank on execution of certain documents such as a promissory note, a deed of hypothecation and a letter assuring the Bank that the Company will remain solely responsible for all loss, damage or deterioration to the stocks hypothecated with the Bank. In relation to the said documents, a person by name Ranjit Singh has executed a bond which was expressly called ‘agreement of guarantee’ wherein it was recited that Ranjit Singh guaranteed to the bank payment on demand of all monies which may at any time be due to the Bank from the company on the general balance of that current bank account, though the Company was not a party to the bond executed by Ranjit Singh. On the construction of the bond, the Supreme Court held as under: “The bond, it is true, did not expressly recite that the Company was the principal debtor; it is also true that the Company did not execute the bond. But a contract of guarantee may be wholly written, may be wholly oral, or may be partly written and partly oral. But a contract of guarantee may be wholly written, may be wholly oral, or may be partly written and partly oral. The documents which secured repayment of the Bank’s claim at the foot of the cash-credit account were executed simultaneously: the bond executed by Ranjit Singh was one of them and the conduct of Ranjit Singh and the Company indicates that Ranjit Singh agreed to guarantee payment of the debt due by the Company. We hold, therefore, that the Bank, the Company and Ranjit Singh were parties to the agreement under which for the dues of the Company, Ranjit Singh became a surety.” The Court has also brought out the fine distinction between an indemnity and a guarantee as under: “A promise to be primarily and independently liable for another person’s conduct may amount to a contract of indemnity. A contract of guarantee requires concurrence of three persons — the principal debtor, the surety and the creditor — the surety undertaking an obligation at the request express or implied of the principal debtor. The obligation of the surety depends substantially on the principal debtor’s default; under a contract of indemnity liability arises from loss caused to the promisee by the conduct of the promisor himself or by the conduct of another person.” 28. Applying the legal principle underlying Section 126 of the Contract Act, as interpreted in the Punjab National Bank Limited (5 supra), to the case on hand, there can be little doubt that the petitioner has acted as surety on behalf of the respondent - principal debtor guarantying the debt to the creditor, i.e, Citibank International. Even in the absence of an express contract, such contract of guarantee is very much implied. It would be highly illogical to think that in the absence of such an agreement between the parties, the respondent would have entered into a Guarantee Fee Agreement. Under Section 127 of the Contract Act, anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee. The indemnity bond executed by the petitioner and the reliance letter issued by it constitute consideration for the guarantee transaction between the petitioner as ‘surety’, the respondent as ‘principal debtor’ and the Citibank International as ‘creditor’. As noted above, the very Guarantee Fee Agreement itself refers to such contract of guarantee. 29. The indemnity bond executed by the petitioner and the reliance letter issued by it constitute consideration for the guarantee transaction between the petitioner as ‘surety’, the respondent as ‘principal debtor’ and the Citibank International as ‘creditor’. As noted above, the very Guarantee Fee Agreement itself refers to such contract of guarantee. 29. From the discussion undertaken hereinabove, the irresistible conclusion that would emerge is that the Guarantee Fee Agreement is preceded by a guarantee arrangement between the petitioner, the respondent and the Citibank International which paved the way for sanction of loan by Citibank India to the respondent. 30. The learned Senior Counsel for the respondents have emphatically argued that under the Guarantee Fee Agreement while the respondents have promised payment of guarantee fee for the guarantee given by the petitioner on their behalf, the petitioner is entitled to recover only the guarantee fee except where the petitioner was required to disburse any amount due to a wrongful mistake, gross negligence or wilful misconduct on the part of the borrower. 31. Countering the submission, Mr. S. Niranjan Reddy, learned counsel for the petitioner, submitted that the Guarantee Fee Agreement was not meant to be executed primarily for the purpose of reimbursement of the loan amount to the petitioner by the respondent and that the loss of Citibank International indemnified by the petitioner and liable to be reimbursed to it was not referable to the loan amount, but other losses. To substantiate this plea, he has referred to the deed of indemnity executed by the petitioner in favour of Citibank International. According to the learned counsel, while Section 145 of the Contract Act protects the interests of the petitioner as a surety to recover the loan amount paid to the respondent, the Guarantee Fee Agreement makes a specific recital for recovery of other losses as referred to in the deed of indemnity. In order to appreciate this submission, it is necessary to refer to the relevant terms of these documents. In order to appreciate this submission, it is necessary to refer to the relevant terms of these documents. The last paragraph of page 2 of the Guarantee Fee Agreement reads as follows: “The Borrower agrees that, should the Guarantor be required to disburse any amount pursuant to the Indemnification Agreement when the loss of Citibank that is being indemnified is due to a wrongful mistake, gross negligence or wilful misconduct on the part of the Borrower, the Guarantor shall be entitled to be reimbursed by the Borrower any such amount so disbursed.” The second paragraph of page 1 and clauses 1 and 2.01 of the deed of indemnity executed by the petitioner in favour of the Citibank International read as under: “IN CONSIDERATION of the Bank, at the request of either the Company or a Principal, granting or agreeing to grant guarantee or similar facilities from time to time (including for the avoidance of doubt those pre-dating this indemnity) and, pursuant to those facilities, issuing and maintaining, or arranging for such of the Bank’s correspondents, agents or offices as the Bank may select (each a “Correspondent”) to issue and maintain, guarantees, indemnities, bonds, undertakings, standby letters of credit or similar instruments (including for the avoidance of doubt those pre-dating this indemnity) in such form, and otherwise on such terms, as the Bank shall approve (each, as from time to time varied, extended, restated, supplemented, assigned or novated, an “Undertaking”) to beneficiaries (each a “Beneficiary”), the Company agrees that: 1. Indemnity The Company irrevocably and unconditionally indemnifies the Bank from and against all demands, claims, obligations, liabilities (whether actual or contingent, present or future, or joint and several, and whether or not subject to the giving of notice), loss and damage (including without limitation all actions, proceedings, charges, costs, expenses, damages, taxes and duties) which the Bank may suffer or incur, or have brought or preferred against it, in each case arising from: i) The Bank’s having entered into or acted under or in connection with: (a) any Undertaking or any related document; or (b) any guarantee or indemnity or reimbursement or similar undertaking given by or on behalf of the Bank in favour of any Correspondent in connection with any Undertaking or any related document (each a “Reimbursement Obligation”); i) the negotiation, preparation and issue of any Undertaking, any Reimbursement Obligation and any related document by the Bank; ii) any variation, supplementing, transfer or assignment of any Undertaking, any Reimbursement Obligation or any related document; and iii) the preservation and enforcement of any rights of the Bank under or in connection with any Undertaking, any Reimbursement Obligation or any related document, (together the “Indemnified Liabilities”) and agrees to pay to the Bank the Indemnified Liabilities on first demand. 2. Communications; Correspondents 2.01 Each Undertaking and any communication in connection with it may be given or sent in English or a foreign language by letter, fax, telex or electronically (in such format as previously agreed with the Bank) in plain language or code at the Company’s and the Principal’s risk and cost and the Company shall indemnify the Bank from and against any liability for any loss or damage arising out of any delay, loss in transit, errors in translation, the coding or decoding of any Undertaking or any such communication or omissions, variations, mutilations or other errors in the transmission of such letters, fax or telex messages. Any such liability shall be deemed to form part of the Indemnified Liabilities.” (Emphasis added) 32. Mr. Niranjan Reddy, learned counsel for the petitioner, argues that the loss of Citibank International, referred to in the above reproduced clauses in the Guarantee Fee Agreement is with reference to various losses that were enumerated therein and the same is not referable to the loan proper. Mr. Niranjan Reddy, learned counsel for the petitioner, argues that the loss of Citibank International, referred to in the above reproduced clauses in the Guarantee Fee Agreement is with reference to various losses that were enumerated therein and the same is not referable to the loan proper. That the respondent has rightly understood the true purport of the Guarantee Fee Agreement, the counsel argues, is reflected from the unequivocal admission of the liability by the respondent under its letters dated 9.3.2012 and 18.11.2012 addressed by it to the RBI. 33. The learned counsel relied upon the judgment in The Godhra Electricity Co. Ltd. v The State of Gujarat and another (1975) 1 SCC 199 ) in support of his submission that the conduct of parties subsequent to the execution of the instrument is very much relevant for interpreting the nature of the contract. 34. The learned Senior Counsel appearing for the respondents submitted that the petitioner has not pleaded in the company petition that its right to recover the loan amount from the respondents is traceable to a separate Guarantee Agreement between the parties and when the Guarantee Fee Agreement is clear and unambiguous, no extrinsic evidence is admissible. They have placed strong reliance on the judgment of the Supreme Court in Her Highness Maharani Shantidevi P. Gaikwad v. Sajibhai Haribhai Patel (2001) 5 SCC 101 ). 35. Before referring to the purported admission of debt by the respondents, it would be instructive to discuss the case law relating to the admissibility of extrinsic evidence. Referring to the English Law, the Supreme Court in The Godhra Electricity Co. Ltd. (6 supra) held: “10.The question whether subsequent “interpreting statement” made by parties to a written instrument is admissible in evidence to construe the written instrument is not free from doubt. In Prenn v. Simmonds [(1971) 3 All ER 237] the House of Lords held that negotiations between parties previous to the formation of a contract are inadmissible to prove the intention of the parties in case of ambiguity in the terms of the contract. In James Miller and Partners Ltd. v. Whitworth Street Estates (Manchester) Ltd. [(1970) 1 All ER 796], the House of Lords held that subsequent conduct of the parties to a contract is not admissible to construe the contract. In James Miller and Partners Ltd. v. Whitworth Street Estates (Manchester) Ltd. [(1970) 1 All ER 796], the House of Lords held that subsequent conduct of the parties to a contract is not admissible to construe the contract. The decision was followed in the recent case of Schuler A.G. v. Wickman Ltd. [(1973) 2 All ER 39 : (1973) 2 WLR 683 where Lord Reid said at pp. 45-6: “I must add some observations about a matter which was fully argued before your Lordships. The majority of the court of appeal were influenced by a consideration of actings subsequent to the making of the contract. In my view, this was inconsistent with the decision of this House in James Miller and Partners Ltd. v. Whitworth Street Estates (Manchester) Ltd.” Lord Morris of Borthy-Cast said at pp. 52-53: “But in a case such as the present I see no reason to doubt the applicability or the authority of what was said in James Miller and Partners Ltd. v. Whitworth Street Estates (Manchester) Ltd. If on the true construction of a contract a right is given to a party, that right is not diminished because during some period either the existence of the right or its full extent was not appreciated.” Lord Wilberforce has stated that subsequent actions ought not to have been taken into account, that extrinsic evidence is not admissible for the construction of a written contract, that the parties’ intentions must be ascertained, on legal principles of construction, from the words they have used and that it is the one and the same principle which excludes evidence of statements or actions, during negotiations, at the time of the contract, or subsequent to the contract, any of which to the lay mind might at first sight seem to be proper to receive. Lord Simon said, after referring to the case of Whitworth Street Estates (supra): “It is true that, on strict analysis, what was said by Lord Hodson, Viscount Dilhorne and Lord Wilberforce cannot be regarded as a vital step towards their conclusions; but, as I have already ventured to demonstrate, the point was directly in issue between the parties in Your Lordship’s House. I am therefore firmly of the opinion that what was said should be regarded as settling the law on this point. I am therefore firmly of the opinion that what was said should be regarded as settling the law on this point. I am reinforced in this opinion, because, in my view, Whitworth Street Estates was a correct decision on the point for reasons additional to those given in the speeches.” He then said: “Sir Edward Sugden’s frequently quoted and epigrammatic dictum in Attorney-General v. Drummond (1842, Dr. & War 353, 368): ‘... tell me what you have done under such a deed, and I will tell you what that deed means’ really contains a logical flaw if you tell me what you have done under a deed. I can at best tell you only what you think that deed means. Moreover, Sir Edward Sugden was expressly dealing with ‘ancient instruments’. I would add thirdly, that the practical difficulties involved in admitting subsequent conduct as an aid to interpretation are only marginally, if at all, less than are involved in admitting evidence of prior negotiations.” 11. In the process of interpretation of the terms of a contract, the court can frequently get great assistance from the interpreting statements made by the parties themselves or from their conduct in rendering or in receiving performances under it. Parties can, by mutual agreement, make their own contracts; they can also by mutual agreement remake them. The process of practical interpretation and application, however, is not regarded by the parties as a remaking of the contract; nor do the courts so regard it. Instead, it is merely a further expression by the parties of the meaning that they give and have given to the terms of their contract previously made. There is no good reason why the courts should not give great weight to these further expressions by the parties, in view of the fact that they still have the same freedom of contract that they had originally. The American Courts receive subsequent actings as admissible guides in interpretation. It is true that one party cannot build up his case by making an interpretation in his own favour. It is the concurrence therein that such a party can use against the other party. The American Courts receive subsequent actings as admissible guides in interpretation. It is true that one party cannot build up his case by making an interpretation in his own favour. It is the concurrence therein that such a party can use against the other party. This concurrence may be evidence by the other party’s express assent thereto, by his acting in accordance with it, by his receipt without objection of performances that indicate it, or by saying nothing when he knows that the first party is acting on reliance upon the interpretation (see Corbin on Contracts, Vol. 3, pp.249 & 254-256)”. After referring to the case law obtaining in other jurisdiction the Supreme Court extracted Odgers’ Construction of Deeds and Statutes, 5th edition, by G. Dworkin. This passage, I feel, is very relevant to be noticed and the same reads as under: “The question involved is this: Is the fact that the parties to a document and particularly to a contract, have interpreted its terms in a particular way and have been in the habit of acting on the document in accordance with that interpretation, any admissible guide to the construction of the document? In the case of an unambiguous document, the answer is ‘No’. (See Odgers’ Construction of Deeds and Statutes, 5th edn. by G. Dworkin, pp.118-119)” On a thorough analysis of the case law, the Supreme Court finally concluded as under: “In these circumstances, we do not think we will be justified in not following the decision of this Court in Abdulla Ahmed v. Animendra Kissen Mitter where this Court said that extrinsic evidence to determine the effect of an instrument is permissible where there remains a doubt as to its true meaning and that evidence of the acts done under it is a guide to the intention of the parties, particularly, when acts are done shortly after the date of the instrument.” 36. Indeed, the judgment in Her Highness Maharani Shantidevi P. Gaikwad (7 supra), relied upon by Mr. S. Ravi, learned Senior Counsel, followed the ratio in The Godhra Electricity Co. Ltd. (6 supra), and using the same quote as in The Godhra Electricity Co. Ltd. (6 supra) and Odgers’ Construction of Deeds and Statutes, 5th edition, the Supreme Court has reiterated the view that in the case of an ambiguous instrument there is no reason why subsequent interpreting statement should be inadmissible. 37. Ltd. (6 supra), and using the same quote as in The Godhra Electricity Co. Ltd. (6 supra) and Odgers’ Construction of Deeds and Statutes, 5th edition, the Supreme Court has reiterated the view that in the case of an ambiguous instrument there is no reason why subsequent interpreting statement should be inadmissible. 37. In the present case, it is the case of the respondents that the contract between the parties, namely, the Guarantee Fee Agreement, is clear and unambiguous under which besides the Guarantee Fee, the petitioner is entitled to recover the loan amount paid to the respondents by the Citibank India only in case of occurrence of one or more of the following events - wrongful mistake, gross negligence or wilful misconduct, on the part of the respondents. While according to them the phrase “the loss of Citibank that is being indemnified” is referable to loss on account of non-payment of loan amount, according to the learned counsel for the petitioner the loss is referable to those referred to in the deed of indemnity. Thus, there is a serious dispute with regard to interpretation of the clause in the Guarantee Fee Agreement and in the face of this dispute it cannot be said that the contract fee agreement is unambiguous. Therefore, in order to know the true purport of the agreement between the parties, the extrinsic evidence, i.e., conduct of the parties as reflected from the contemporaneous correspondence is relevant. It is therefore necessary to consider this correspondence between the parties. 38. By letter dt.15.9.2011 the Citibank India has referred to non-payment of the scheduled quarterly instalments payable by the respondent on 1.6.2011, and in order to recall the entire loan amount it called upon the respondent to repay the balance outstanding amount amounting to Rs.25,91,99,665/- along with interest of Rs.9,69,335.73 ps. The respondent was also put on notice that in the event of non-payment, Citibank India will be entitled to take such action as may be advised at the former’s own costs and consequences. In its subsequent letter dt.20.10.2011 the Citibank India has informed the respondent that it has taken the next step of drawing down on the SBLC from Citibank International London and received payment towards the loan outstanding pursuant to the agreement dated 9.10.2009. In its subsequent letter dt.20.10.2011 the Citibank India has informed the respondent that it has taken the next step of drawing down on the SBLC from Citibank International London and received payment towards the loan outstanding pursuant to the agreement dated 9.10.2009. In the comprehensive letter dt.14.2.2012 the petitioner has informed the respondent that as per the arrangement between the parties and consequent upon the default committed by the respondent, the Citibank International Offshore has recovered a sum of Rs.25,91,99,665/- towards principal and an amount of Rs. 9,69,335.73 ps. towards interest from the petitioner. Therefore, the petitioner has called upon respondent to agree and undertake to make payment of the debts due and payable, by obtaining necessary approvals from the monitoring committee, the CDR empowered group and the RBI. On receipt of the said letter, the respondent has addressed a letter dt.9.3.2012 to the General Manager, Foreign Exchange Department, Central Office Building, RBI. This letter constitutes a pivotal document and therefore its contents relevant in the present context are reproduced hereunder: “It is to state that BluOrchard is an asset manager based in Switzerland that finances microfinance institutions worldwide in 44 countries through funds managed by it. Accordingly, BlueOrchard enabled SHARE to raise resources in India from an Indian bank (“Citibank India”) via SHARE’s loan agreement with Citibank India dated October 9, 2009; by arranging for a guarantee to be issued to the Citibank India using the Dexia Micro Credit Fund. … Thus to state briefly, as per the above mentioned arrangement the amount outstanding from SHARE to Citibank India has been paid by BlueOrchard (DMCF) through Citibank Offshore and this payment has to be made to BlueOrchard (DMCF) by SHARE. Now, therefore an amount of INR 25,91,99,665/- in principal and INR 9,69,335.73/- as interest is due and payable by SHARE to BlueOrchard (DMCF).” (emphasis supplied) In reply to the said letter, the RBI vide its letter dt.28.3.2012 informed the respondent that as per the AP (Dir Series) Circular No.28 dated 30.3.2001 read with FEMA notification No.29/2000-RB, there is a general permission to a resident, who is a principal debtor to make payment to a person who is a resident outside India to meet liabilities under a guarantee. The letter has also advised the respondents to approach CDR empowered group for inclusion of the amounts payable to the petitioner. The letter has also advised the respondents to approach CDR empowered group for inclusion of the amounts payable to the petitioner. In its subsequent letter dt.2.11.2012 addressed to the Chief General Manager, RBI, the respondent has further stated as under: “With reference to the above, we sincerely thank the RBI for according approval for restructuring the debt of SHARE Microfin Limited (“SHARE” or “the Company”) to BlueOrchard (DMCF) (foreign entity) under the CDR scheme extended to Indian lenders. BlueOrchard (DMCF) is a fund managed by BlueOrchard SA, an investment company organized under the laws of the Grand Duchy of Luxembourg as a Socie’te’ d’ Investissemen a’ Capitable Variable.” 39. It is not relevant to discuss as to for what reasons the petitioner’s debt is not included under CDR Restructuring Package. The above correspondence clearly reveals the manner in which the respondent has understood the contract between it and the petitioner qua its liability towards the petitioner. 40. The petitioner has filed a copy of the notes to financial statement for the year ended 31st March, 2012 prepared by the respondent wherein it has shown a sum of Rs.2,59,20,000/- with interest at the rate of 9.10% as due to the petitioner within one year. Footnote No.4 of the statement represents the liability details of the BlueOrchard Microfinance Fund, on invocation of guarantee by Citibank India. Thus, there is a clear admission of the debt by the respondent. 41. It passes one’s comprehension as to why the respondent has acknowledged and admitted its liability of the debt to the petitioner if it was not liable to reimburse the loan amount received by it. As a matter of fact, for the first time in their counter affidavits filed in these petitions the respondents have denied their liability by giving restricted interpretation to the guarantee fee agreement. It is of relevance to note that even in their replies to the statutory notices they have not denied their liability. On the contrary, they have proceeded on the premise that the debts are payable but the same cannot be done without prior consent and due consultation with the CDR empowered group. A caveat of course was entered in the concluding part of the reply notice that the contents of the notice should not be construed as any admission on their part and the same is without prejudice to and waiver of their rights/remedies. A caveat of course was entered in the concluding part of the reply notice that the contents of the notice should not be construed as any admission on their part and the same is without prejudice to and waiver of their rights/remedies. The conduct of the respondent as reflected in its reply notice and the counter affidavit, reveals that it was slowly trying to wriggle out of its obligation initially by taking shelter under CDR Restructuring Scheme and later by denying its liability by raising a specious plea that the petitioner is not entitled for reimbursement of the loan amount. 42. Mr. S. Niranjan Reddy, learned counsel for the petitioner, argued that even in the absence of a specific provision under the Contract Act or an express provision in the contract, the liability is absolute on the respondents to reimburse the loss suffered by the petitioner to discharge their liability. In support of his submission, he has relied upon the following judgments. (i) Moule v. Garrett (1 supra) (ii) Re Healing Research Trustee Co. Ltd. (4 supra) (iii) Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri (2 supra) 43. In Moule v. Garrett (1 supra), the plaintiff was the lessee of certain premises. The lease deed contained a covenant that the lessee should keep the premises in repair. The lessee gave the premises on a sub-lease to another person, who in turn has assigned the same to the defendants. The sub-lease from the plaintiff and assignment deed between sub-lessee and the assignee contained express provisions to indemnify against all subsequent breaches. The defendants while in possession have committed breach of the covenant to keep the premises in repair, due to which the lessor is entitled to recover damages from the plaintiff. The suit was decreed in favour of the original lessee. The Exchequer Chamber affirmed the judgment in the appeal. Cockburn C.J., referred to Mr. Leake On his work on Contracts, and quoted as under: “Where the plaintiff has been compelled by law to pay, or, being compellable by law, has paid money which the defendant was ultimately liable to pay, so that the latter obtains the benefit of the payment by the discharge of his liability; under such circumstances the defendant is held indebted to the plaintiff in the amount.” Based on this doctrine, the Court laid down the following proposition. “Where one person is compelled to pay damages by the legal default of another, he is entitled to recover from the person by whose default the damage was occasioned the sum so paid.” The Court further held: “Whether the liability is put on the ground of an implied contract, or of an obligation imposed by law, is a matter of indifference: it is such a duty as the law will enforce. The lessee has been compelled to make good an omission to repair, which has arisen entirely from the default of the defendants, and the defendants are therefore liable to reimburse him.” Willes, J, while concurring with the opinion, of Cockburn C.J., succinctly explained the legal proposition as under: “I am of the same opinion, on the ground that where a party is liable at law by immediate privity of contract which contract also confers a benefit, and the obligation of the contract is common to him and to the defendant, but the whole benefit of the contract is taken by the defendant; the former is entitled to be indemnified by the latter in respect of the performance of the obligation.” The principle in Moule v. Garrett (1 supra) later came to be known as Moule v. Garrettee liability. This doctrine was referred to and relied upon by the Chancery Division (Companies Court) in Re Healing Research Trustee Co. Ltd. (4 supra). In that case, the assignee has not paid rent to the lessee. The lessee in turn had, however, paid rent to the landlord. The lessee has sued the assignee for recovery of the rent paid by it to the landlord. The assignee has taken a defence that the transfer deed between the lessee and the assignee excluded any liability that the assignee may owe to the lessee under the lease for non-payment of rent. Repelling the submission of the assignee that the contract has restricted the obligation of the assignee only to a sum of 65,000 which was deposited by the assignee, Harman, J, speaking for the Chancery Division, observed: “…I am unable to see why that intention should be implied from the limited facts before the court. It may be that those who drew the clause intended to be included in the transfer were simply ignorant of the rule in Moule v. Garrett and so made no reference to it. It may be that those who drew the clause intended to be included in the transfer were simply ignorant of the rule in Moule v. Garrett and so made no reference to it. It is impossible, in my judgment, to be sure that if at the time of the contract the officious bystander had asked, ‘Do you mean to exclude all Moule v. Garrett liability?’ the petitioner and the company would have answered with a common, ‘Oh, of course’.” 44. In Gajanan Moreshwar Parelkar (2 supra), M.C. Chagla, J, as His Lordship then was, held that Indian Contract Act, both an amending and a consolidating Act, is not exhaustive of the law of contract to be applied by the Courts in India. While repelling the submission that unless and until loss is suffered, indemnified is not entitled to sue indemnifier under Section 124 of the Contract Act, his Lordship held as under: “It is true that under the English common law no action could be maintained until actual loss had been incurred. It was very soon realized that an indemnity might be worth very little indeed if the indemnified could not enforce his indemnity till he had actually paid the loss. If a suit was filed against him, he had actually to wait till a judgment was pronounced, and it was only after he had satisfied the judgment that he could sue on his indemnity. It is clear that this might under certain circumstances throw an intolerable burden upon the indemnity-holder. He might not be in a position to satisfy the judgment and yet he could not avail himself of his indemnity till he had done so. Therefore the Court of equity stepped in and mitigated the rigour of the common law. The Court of equity held that if his liability had become absolute then he was entitled either to get the indemnifier to pay off the claim or to pay into Court sufficient money which would constitute a fund for paying off the claim whenever it was made. As a matter of fact, it has been conceded at the bar by Mr. Tendolkar that in England the plaintiff could have maintained a suit of the nature which he has filed here; but, as I have pointed out, Mr. Tendolkar contends that the law in this country is different. As a matter of fact, it has been conceded at the bar by Mr. Tendolkar that in England the plaintiff could have maintained a suit of the nature which he has filed here; but, as I have pointed out, Mr. Tendolkar contends that the law in this country is different. I have already held that Sections 124 and 125 of the Indian Contract Act are not exhaustive of the law of indemnity and that the Courts here would apply the same equitable principles that the Courts in England do. Therefore, if the indemnified has incurred a liability and that liability is absolute, he is entitled to call upon the indemnifier to save him from that liability and to pay it off.” 45. Indeed, the above general proposition of the law is somewhat reflected in Section 70 of the Indian Contract Act though the said provision is generally invoked in the absence of any express contract between the parties. 46. The legal principle that could be culled out from the above discussed judgments is that even in the absence of specific terms of contract or an express provision in the Contract Act, where a person has been compelled by law to pay money which was liable to be paid by other person and thereby that other person obtains the benefit of the payment by the discharge of the liability, he is indebted to the person who discharges such liability. This equitable doctrine laid down by both English and Indian Courts applies in all fours to the present case where there is no dispute about the fact that the respondents were liable in law to repay the debt to the Citibank and their liability was discharged by the petitioner. On the application of Moule v. Garrett principle, the respondents are bound to discharge the liability to the petitioner. Holding any other view would not only be highly iniquitous, but also wholly immoral. The respondents cannot be allowed to get away from their legal liability by taking shelter under the Guarantee Fee Agreement and ignoring their own admission of liability. 47. The respondents also cannot be permitted to raise the technical pleas such as absence of proper pleadings in the company petition. It is no doubt true that the petitioner in the company petitions has not pleaded in so many words a separate guarantee arrangement de hors the Guarantee Fee Agreement. 47. The respondents also cannot be permitted to raise the technical pleas such as absence of proper pleadings in the company petition. It is no doubt true that the petitioner in the company petitions has not pleaded in so many words a separate guarantee arrangement de hors the Guarantee Fee Agreement. As rightly explained by Mr. S. Niranjan Reddy, learned counsel for the petitioner, that may be due to the fact that at the time of filing of the company petitions there was no denial of the liability by the respondents. However, in the reply, while admitting the plea of denial raised in the counter affidavit, the petitioner specifically averred as under: “In any event even without reference to the terms of the Guarantee Fee Agreement, as provided under Section 145 of the Indian Contract Act, 1872, the petitioner is entitled to be indemnified by the principal debtor and the surety (being the Petitioner herein) is entitled to recover from the principal debtor (i.e., the Respondent) whatever sum it has rightfully paid under the guarantee. Given this legal position and given the fact that the respondent has already admitted its liability in favour of the petitioner, the respondent cannot be permitted to contend otherwise.” 48. Finally, the learned counsel for the respondents submitted that the arrangement between the petitioner and the respondents is in the nature of an insurance contract and the same is not a contract of guarantee. The fact that the Guarantee Fee Agreement does not envisage recovery of the loan amount in the event of default by the respondents excepting the three situations mentioned therein, submitted the counsel, shows that the agreement is in the nature of insurance. This submission, in my opinion, is advanced in despair. The Halsbury’s Laws of England, Fourth edition, Volume 25, has described the scope of Debt Insurance as under: “Non-payment of debts as an insurable contingency. Wherever a debt exists the creditor is exposed to the risk of loss by reason of the debtor’s failure to make repayment. This is a risk against which the creditor can protect himself by insurance, which may be effected before the debt is actually incurred. The insurance may cover the general balance of indebtedness from a particular person or class or persons, but more usually a specific debt is insured. This is a risk against which the creditor can protect himself by insurance, which may be effected before the debt is actually incurred. The insurance may cover the general balance of indebtedness from a particular person or class or persons, but more usually a specific debt is insured. The debt may be unsecured, as in the case of an ordinary loan or deposit at a bank, or it may be secured by mortgage or debenture. In either case the debtor whose default is insured against need not be the principal debtor; if a debt is already secured by means of a guarantee or policy of insurance a policy may be effected to cover the default of the sureties or of the other insurers.” It has also clearly brought out the distinction between an insurance contract and a guarantee contract in the following manner: “(1) Insurance is purely a business contract, and liability is accepted in consideration of a premium based upon an estimate of the risk. In a guarantee, liability is usually accepted on personal grounds and without payment. (2) The insurers have no personal knowledge of the risk, and rely entirely upon what they are told. Consequently, as in the case of other contracts of insurance, they are entitled to a full disclosure of all material facts. In a guarantee the duty of disclosure is less extensive. (3) The insurers are not sureties; they undertake to pay not the original debt, but a new debt arising under a contract of indemnity, and this may differ from the original debt both in amount and as regards the date of payment. (4) The insurers have no independent rights against the debtor, but are merely subrogated to the remedies of the assured, whereas a surety has a direct claim against the debtor.” As could be culled out from the legal position noted above, the creditor insures against risk and loss by reason of debtor’s failure to repayment. As rightly pointed out by Mr. S. Niranjan Reddy, learned counsel for the petitioner, the respondent being the debtor qua the petitioner the concept of contract of insurance has no application. As rightly pointed out by Mr. S. Niranjan Reddy, learned counsel for the petitioner, the respondent being the debtor qua the petitioner the concept of contract of insurance has no application. He has further argued that in respect of the loans disbursed by the petitioner to third parties from out of the money borrowed from the financial institutions such as Citibank, the respondents could not have entered into a contract of insurance to cover the loan disbursed to them. I am entirely in agreement with this submission of the learned counsel for the petitioner. As rightly pointed by him, it is a creditor who can enter into a debt insurance contract in respect of the debts lent to its borrowers. Being in the position of debtors, the question of their entering into by debt insurance agreements with the lenders/sureties would not arise. 49. In the light of the above discussion, I hold that the agreement between the parties is a contract of guarantee under which the petitioner is entitled to recover the loan amount advanced by Citibank India to the respondent and recovered from the petitioner by the Citibank International. In Re Point No.2. 50. Following the discussion made and conclusion reached on point No.1, there cannot be any cavil of doubt that the respondents have become indebted to the petitioner. This point is accordingly answered. In Re Point No.3. 51. In Re Point No.2. 50. Following the discussion made and conclusion reached on point No.1, there cannot be any cavil of doubt that the respondents have become indebted to the petitioner. This point is accordingly answered. In Re Point No.3. 51. Section 433 (Section 433 : A company may be wound up by the Tribunal – (a) if the company has, by special resolution, resolved that the company be wound up by the Tribunal; (b) if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting; (c) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year; (d) if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two; (e) if the company is unable to pay its debts; (f) if the Tribunal is of the opinion that it is just and equitable that the company should be wound up; (g) if the company has made a default in filing with the Registrar its balance sheet and profit and loss account or annual return for any five consecutive financial years; (h) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality; (i) if the Tribunal is of the opinion that the company should be wound up under the circumstances specified in Section 424G; Provided that the Tribunal shall make an order for winding up of a company under clause (h) on application made by the Central Government or a State Government.) of the Act envisages the grounds for winding up of a company. The present Company Petition is concerned with the ground mentioned in clause (e) of the said provision. Under this clause, a company may be wound up if it is unable to pay its debts. The present Company Petition is concerned with the ground mentioned in clause (e) of the said provision. Under this clause, a company may be wound up if it is unable to pay its debts. Section 434 (Section 434 : (1) A company shall be deemed to be unable to pay its debts – (a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum or to secure or compound for it to be reasonable satisfaction of the creditor; (b) if execution or other process issued on a decree or order of any Court or Tribunal in favour of a creditor of the company is returned unsatisfied in whole or in part; or (c) if it is proved to the satisfaction of the Tribunal that the company is unable to pay its debts, and, in determining whether a company is unable to pay its debts, the tribunal shall take into account the contingent and prospective liabilities of the company. (2) The demand referred to in clause (a) of sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by an agent or legal adviser duly authorised on his behalf, or in the case of a firm, if it is signed by any such agent or legal adviser or by any member of the firm.) of the Act explained as to what constitutes the inability of a company to pay its debts. The main ingredients to be satisfied for ordering winding up of a company for its inability to pay its debts are, (i) if it is shown that the company is indebted in a sum exceeding Rs.500/- (though the amount is enhanced to Rs.1 lakh by Companies (Second Amendment) Act, 2002, the same is not notified) and despite service of notice on it by a creditor by assignment or otherwise, it has neglected to pay the same for more than three weeks after such service or to secure or to compound for it to the reasonable satisfaction of the creditor, and (ii) if the execution or other process issued on a decree or order of any Court or Tribunal in favour of a creditor of the company is returned unsatisfied in whole or in part. The scope of these provisions is well explained in a catena of Judgments of the Apex Court. 52. In India Bulls Housing Finance Ltd. Vs. M/s. South Asian Agro Industries Ltd. ((1962) Ch. 406 : 1962 Comp. Cases 795 (Ch.D)), I had an occasion to review the case law on the subject. After referring to the Judgments in M/s. Madhusudan Gordhandas & Co. Vs. Madhu Woollen Industries Pvt. Ltd. (1965 (35) Comp. Cases 456 (SC)), Tweeds Garages Ltd., Re ( (1994) 3 SCC 348 ), Amalgamated Commercial Traders (P) Ltd. Vs. A.C.K. Krishnaswami and another ( (2005) 7 SCC 42 ), Pradeshiya Industrial & Investment Corporation of U.P. Vs. North India Petrochemicals Ltd. (2009) 3 SCC 527 ), Mediquip Systems (P) Ltd. Vs. Proxima Medical System GmbH ((2010) 10 SCC 553), Vijay Industries Vs. NATL Technologies Ltd. ((2013) 176 Comp. Cases 483 (A.P.)), IBA Health (India) Pvt. Ltd. Vs. Info-Drive Systems SDN.BHD. (2014) 187 Comp. Cases 301 (Bombay)), and Krishna Kilaru and another Vs. Maytas Properties Limited ([2015] 188 Comp. Cases 416 (Delhi)), I have deduced the following legal principles: 1. If the debt is bona fide disputed and the defence is a substantial one, the Court will not wind up the company. Conversely, if the plea of denial of debt is a moonshine or a cloak, spurious, speculative, illusory or misconceived, the Court can exercise the discretion to order the company to be wound up. 2. A petition presented ostensibly for winding up order, but in reality to exert pressure to pay the bona fide disputed debt is liable to be dismissed. 3. 2. A petition presented ostensibly for winding up order, but in reality to exert pressure to pay the bona fide disputed debt is liable to be dismissed. 3. Solvency is not a stand alone ground. It is relevant to test whether denial of debt is bonafide. 4. Where the debt is undisputed and the company does not choose to pay the particular debt, its defence that it has the ability to pay the debt will not be acted upon by the Court. 5. Where there is no dispute regarding the liability, but the dispute is confined only to the exact amount of the debt, the Court will make the winding up order. 6. An order to wind up a company is discretionary. Even in a case where the company’s inability to pay the debt was proved, order to wind up the company is not automatic. The Court will consider the wishes of shareholders and creditors and it may attach greater weight to the views of the creditors. 7. A winding up order will not be made on a creditor’s petition if it would not benefit him or the company’s creditors generally and the grounds furnished by the creditors opposing winding up will have an impact on the reasonableness of the case. 53. On Point No.2, I have held that the respondents owe money to the petitioner. The respondents have pleaded that the CDR scheme covering all the Indian creditors of the respondents is in force. The learned Counsel for the petitioner relied upon the Judgment in BNY Corporate Trustee services Ltd. Vs. Wockhardt Ltd. ((2006) 133 Company Cases 130) wherein at para-59, the Bombay High Court held : “As far as the maintainability of the petition is concerned, once the objection raised in that behalf is found to be of no substance, then, the other contentions need not detain me. The petitioner cannot be forced to join the CDR scheme. The law does not postulate(s) any such compulsion on the petitioner. Once Section 433(3) and Section 434(1)(a) of the Companies Act, 1956, is applicable, then, the section does not confer a right on a debtor but only gives him an opportunity to discharge the debt in one or other of the ways mentioned therein. The debtor could secure or compound for a debt only where the circumstances under which the demand is made permit such a discharge. The debtor could secure or compound for a debt only where the circumstances under which the demand is made permit such a discharge. It is not the respondent’s case that CDR is a discharge. It seeks the petitioner’s approval to agree to postponement of payment to a future date. However, once the petitioner does not agree to any such course in law, it cannot be said that a winding up petition should not be presented by it. There is no absolute right in a creditor and he cannot insist on a winding up order being passed but the court cannot refuse to entertain a petition merely because CDR scheme for settlement of its debts is proposed by the company. A scheme is proposed and the creditors will have to wait for settlement of their dues, by itself, cannot be a ground to refuse the admission of winding up petition…..” 54. In Citibank N.A. Vs. Moser Baer India Ltd., (2015] 188 Comp. Cases 416 (Delhi)) the Delhi High Court, at para-20, held : “The judgments of the Bombay High Court, both by two learned Single Judges of that court, cited on behalf of the petitioner-company deal with cases of CDR Scheme and the question whether the implementation of the said Scheme can be used as a bar on the right of the unsecured creditor to file a petition for winding-up. In Sublime Agro Ltd. (supra) Kathawalla, J., held that the scheme is a voluntary scheme which is not binding on the unsecured creditors who “are always at liberty to remain out of the scheme and pursue the winding up proceedings” and that “the Court cannot push back the claims of the unsecured creditors and allow the Company to keep on creating further liabilities so that ultimately what is recovered from the Company upon being wound up is taken away by the secured creditors and the creditors whose claims are to be given priority in law leaving the unsecured creditors high and dry”. Quoting CO. PET. 558/2012 Page 18 of 21 Palmer’s Company Law, Vol.I, it was observed that refusal of the order of winding-up in such a case may rob the unsecured creditors of “what is virtually their only remedy”. Quoting CO. PET. 558/2012 Page 18 of 21 Palmer’s Company Law, Vol.I, it was observed that refusal of the order of winding-up in such a case may rob the unsecured creditors of “what is virtually their only remedy”. Dharmadhikari, J., was equally categorical when he observed that the unsecured creditors cannot be made to wait because of the CDR scheme and that the implementation of the Scheme by itself cannot be a ground for refusing to admit the winding-up petition. In that case, some of the bond-holders had chosen to join the scheme, but that was held to be irrelevant. The petitioner, it was held, cannot be forced to join the scheme.” 55. While there is no statutory embargo on the admission of a Company Petition when a CDR scheme is in force, it would be a grave travesty of justice if the Company Petitions are thrown out on the ground of such a scheme being in force, for, on the one side the request of the petitioner for inclusion of its debt under the scheme is not acceded to, and on the other side, it is being pleaded that the CDR scheme is in force. On the respondents’ own showing, they are unable to pay the debts, as following the enactment of the A.P. Micro Finance Institutions (Regulation of Money Lending) Act 2010, all the micro finance institutions in Andhra Pradesh including the respondents have suffered financial set back reducing their operational self-sufficiency from 150% to 40% in the Financial Year 2011-12. Thus, the respondents themselves have pleaded their inability in payment of debts due to various financial institutions as a result of which CDR schemes are being implemented in respect of their debts other than that owed to the petitioner. Besides their inability to pay the debts, the respondents have gone to the extent of making a false denial of their liability having admitted their liability in categorical terms in the correspondence with the RBI and the petitioner. While the respondents seem to wriggle out of the financial crisis under the CDR scheme, they are not showing any concern for the petitioner who lost huge money on account of the default of the respondents. While the respondents seem to wriggle out of the financial crisis under the CDR scheme, they are not showing any concern for the petitioner who lost huge money on account of the default of the respondents. As rightly submitted by the learned counsel for the petitioner it constitutes ‘a commercial immorality’ which is recognised as one of the grounds for admitting a company petition (See Enernorth Industries Inc v. VBC Ferro Alloys Ltd. (2006) 133 Company Cases 130) Therefore, both under the settled law as well as equity, the Company Petitions deserve to be admitted. However, as the CDR schemes may go haywire if immediate action for advertisement is taken and to enable the respondents to explore the viable alternatives for repayment of their debts to the petitioner, I deem it expedient to defer the publication of advertisement for a reasonable period. Considering the magnitude of the debts owed by the respondents to the petitioner as well as other financial institutions, I consider a period of six months as reasonable for deferring the publication of advertisement. 56. In the result, the Company Petitions are admitted. However, to enable the respondents to repay the debts to the petitioner, the publication of advertisement is deferred by six months from today. Post on 01-12-2015 for further orders.