The case revolved around a bank loan which had been made as part of a wider series of transactions in relation to a share sale agreement. The main question was whether the loan, which was governed by the law of one jurisdiction, was unenforceable by reference to principles of public policy on the ground that part of the arrangements was unlawful in another jurisdiction.

The Company, through its principal and an associated company registered in India, sought to profit by gaining control of and selling on to investors shares in a private Indian bank, called Tamilnad Mercantile Bank Ltd (“TMB”). This involved acquiring options (i) to purchase 95,418 shares in TMB, which represented 33.6% of the issued and paid-up equity shares in TMB and had been held in the name of a group of Indian investors called the Sterling Group, and (ii) to acquire a further 17% of TMB’s shares (together “TMB shares”). It was proposed that these shares would be sold to investors who were not connected to each other, in tranches of less than 5% of the issued share capital of TMB so as to avoid breaching Indian foreign exchange and banking rules, to which the Board refers below. The agreement to assign the options provided that the placement of TMB shares with international investors was to comply with the guidelines and regulations issued by the Reserve Bank of India (“RBI”).

In an agreement between Corsair Investments LLC, a USA-based private equity fund (“Corsair”), the Company and Standard Chartered Bank (Mauritius) Ltd (“the Bank”) (and initially, before amendment, two other entities) (“the Escrow Agreement”) it was agreed that TMB shares amounting to 40% of TMB’s paid-up share capital would be placed into escrow with the Bank and released on sale to purchasers who were willing to purchase less than 5% stakes in TMB and whom Corsair was to identify. The TMB shares when sold on would be held by special purpose vehicles for each of the investors and the purchase funds would be deposited into escrow. The Escrow Agreement is governed by the laws of India. The escrow account into which the share certificates and executed blank transfer forms were to be deposited and two other escrow accounts to hold the proceeds of the sale of the TMB shares (one in US dollars and the other in rupees) were to be held by Standard Chartered Bank, Mumbai (“SCB Mumbai”) as sub-agent of the Bank.

The argument of the Company was that the arrangements surrounding an agreement dated 29 December 2006 (the “Facility Agreement”) were in breach of Indian law and there was therefore a substantial dispute as to whether the debt, upon which the statutory demand was based, was enforceable. The purpose of the loan facility (the “Facility”) was to re-finance the options to acquire the TMB shares and the Facility was inextricably linked to the wider transaction which included an Escrow Agreement which provided security to Standard Chartered Bank (Mauritius) Ltd (Mauritius) (the “Bank”) for the Facility.

The Enforcement Directorate for the Ministry of Finance in India (“the ED”) had challenged the Escrow Agreement as a violation of the Indian Foreign Exchange Management Act 1999 in the Show Cause Notice and had later held SCB Mumbai and its director were guilty and found that the TMB shares were held as security for the Facility.

The decision of the Board

One of the issues which the Board had to determine was whether there was no genuine and substantial dispute in relation to the claimed debt on the ground of the illegality of the transaction of the Facility Agreement.

In the Board’s view, the Show Cause Notice would have been sufficient to amount to an arguable case of the illegality of the use made of the escrow arrangements in 2007, without fortification by the ED Order. But the difficulty which the Company faces and has faced throughout this litigation is in establishing a case that the Facility itself is either illegal under Mauritian law or unenforceable because the wider transaction involved breaches of Indian law.

Under article 1131 of Civil Code, a contract based on an unlawful or false cause is without any effect. There are three grounds to establish the basis of an unlawful cause:

  1. the cause may be illegal under domestic law through statutory provision;
  2. it may be contrary to good morals; or
  3. it may be contrary to public policy.

The issue which had to be determined was whether the enforcement of the repayment of the Facility would be contrary to Mauritian public policy. The decision of the Privy Council hinged on the reasoning that where a contract would require an act or omission amounting to a breach of the laws of a friendly foreign state, its enforcement will breach public policy and may be refused on the basis of international comity. The Privy Council therefore suggests that the concept of Mauritian public policy would also embrace considerations of international comity.

The Board found no basis for the argument that the enforcement of the Facility Agreement against the Company in Mauritius would involve a breach of international comity and hence public policy inasmuch as:

  • The Company no longer alleges that the Bank, by entering into the Facility Agreement as part of the wider transaction to facilitate the acquisition of TMB shares, was involved in a conspiracy to commit acts which were illegal in India;
  • There is nothing in the Facility Agreement which discloses a determining purpose that any part of the wider transaction be carried out in a manner which was contrary to Indian law;
  • The Company was not able to suggest that the failure to obtain the Reserve Bank of India’s permission was an act or omission which was necessitated by the Facility Agreement or by the Escrow Agreement which were each a part of the wider transaction, the more so no basis has been advanced for suggesting that the illegality of performance was a necessary part of the transaction or was intended by the parties to the Facility Agreement.

The other issues and three additional grounds of appeal raised by the Company were also set aside by the Board as follows:


The Board addressed this issue as it allowed the Company to refer to the ED order de bene esse and, having considered its terms, was satisfied that it did not affect the outcome of the appeal on the question of the enforceability of the debt. Furthermore, the facts surrounding the Company’s attempt to adduce the ED Order in evidence were not clear inasmuch as there was no suggestion that the document had been given to the Bank before the hearing and it was not clear whether the Court of Appeal was aware of the nature of the document in advance of the motion.


The Board was of the view that the case which the Bank came to court to answer in the courts below was that it was a secured creditor and thereby disentitled for that reason alone to pursue the winding up of the company. The Bank therefore went to considerable lengths to persuade the courts below that it was not in fact a secured creditor at all, or at least not secured by reference to assets of sufficient realisable value with which to pay the debt. The case advanced before the Board was, whether or not strictly a secured creditor, the Bank had sufficient control over the main assets of the Company that it would be unfair and unjust for the Bank to persist in seeking its liquidation while holding on to those assets, from which it would be in a practicable position now to obtain payment.

The Board, inter alia, held that:

“As finally deployed before the Board, this was in substance a new case, however skilfully and sympathetically presented. At all stages in the lower courts the Company’s case had only two prongs: (i) that continuing to hold any security was enough to disentitle the Bank from serving a statutory demand, and/or (ii) that the Bank held sufficient realisable security to enable it to be repaid in full. The first prong has now (rightly in the Board’s view) been abandoned, while the Company had twice failed to establish the second essentially factual prong in the courts below, and (for reasons briefly set out in the following paragraph) had no real prospect of succeeding upon it before the Board.”

“It is not unknown for the Board to admit a new argument, not run in the courts below, where it is one of pure law, based on facts which are either agreed or no longer susceptible to challenge, and where the point can be fully argued out with no prejudice to the opposing party. But even then the Board may decline to do so where the point of law is one upon which the Board would have wished to have the opinion of the courts below, and in particular the appellate court in the territory where the issue had arisen”


In refusing an application to set aside a statutory demand, the Court in Mauritius has a choice under section 181(6)(a)(ii) of the Insolvency Act 2009, either to leave the creditor to present a winding up petition based upon the unsatisfied demand in the usual way, or to make an immediate order for winding up.

The Board further emphasised on the judge’s discretion to order the immediate winding up of a company upon the refusal of an application to set aside a statutory demand without the need to act upon a winding up petition. One of the reasons why the Court might make an immediate order include where there is perceived to be a threat to the remaining assets, which could be mitigated by the immediate appointment of a liquidator, or where requiring the creditor to go through the process of presenting a petition would just be a waste of time and money.

key contacts

Yahia Nazroo

Partner: Mauritius

T +230 203 4313
E Email Yahia

Fatema Mohidinkhan

Associate: Mauritius

T +230 203 4317
E Email Fatema

Dylan Mannikum

Associate: Mauritius

T +230 403 4371
E Email Dylan

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