of S.U., U.T.I. & Anr Vs. Garware Polyester Ltd  Insc 322 (9 May 2005)
Singh & S.B. Sinha
out of S.L.P. (Civil) No.20174 of 2004] S.B. SINHA, J:
Respondent herein is a company registered under the Companies Act, 1956, and
engaged in the manufacture of polyester film; 50% of which production used to
be exported to United
States of America, United Kingdom, Europe, Far
East, Middle East, Japan, New Zealand etc. Having regard to the adoption of
liberalization policy by the Government of India, the Company intended to
become globally competitive and went for a massive expansion in the year 1996.
The scheme of the said expansion was financed by obtaining term loans and
issuance of debentures by various financial institutions including the
Appellant No.2 herein. For various reasons, including imposition of European
Union Levelled Anti Dumping Duties, the Respondent suffered a cumulative loss
of Rs.228.58 crores by March 2001. In the said circumstance, the Respondent
approached the Industrial Development Bank of India with a request for a restructuring package to clear its
liabilities. A restructuring proposal was mooted;
two meetings were held in March 2001 and October 2001 wherein the Unit Trust of
India (UTI) participated. All the debenture holders upon due deliberations
agreed to the said proposal of restructuring package except the Appellants
herein. It is not in dispute that pursuant to or in furtherance of the said
restructuring package, the Respondent herein paid a sum of Rs.64.44 crores to
various financial institutions between the period 1.10.2001 and 15.1.2003 in
the following terms :
Principal in (Rs.Crores) Deferred Interest Total
IDBI 15.5% PPD 99.50 43.70 143.20
IDBI 16% NCD 2.18 0.87 3.05
ICICI ZCD 6.00 1.95 7.95
16% NCD 9.80 3.92 13.72
18.5% PPS 4.00 1.85 5.85
18.5% PPD 10.00 3.41 13.41
18.5% PPD 1.75 0.81 2.56
INDIA 18.5% PPD 1.75 0.81 2.56
NATIONAL 18.5% PPD 1.05 0.49 1.54
OIC 18.5% PPD 1.05 0.49 1.54
UTI 18.5% PPD 1.40 0.65 2.05
197.43 81% of the principal outstanding carrying interest @ 12.5% need to be
repaid in 28 quarterly installments commencing from 1.4.2003.
the principal outstanding carrying nil rate of interest need to be repaid
partly to the extent of 385 during 2003-2004 and the balance to be repaid with
a premium of 85% in 24 quarterly installments commencing from 1.4.2006 Deferred
interest being the interest outstanding carrying nil rate of interest need to
be repaid in 24 quarterly installments commencing from 1.4.2006.
interest and Liquidated damages outstanding as on 31.3.2001 to be waived.
addition to the above, sacrifice being the amount representing the difference
between the contracted rate of interest and the rate as per the restructuring
package will be paid on net present value (NPV) basis in 12 quarterly
installments commencing from 1.4.2002." On or about 19.6.1997, a Common
Subscription Agreement was entered into by and between the Respondent and the
debenture holders; the relevant clauses whereof are as under :
Wherever used in this Agreement, unless the context otherwise requires the
following terms shall have the following meanings :
*** *** b) *** *** *** c) "Debenture holders" means LIC, UTI, GIC,
NIC, NIA, OIC and UTI or the holders of the Debentures for the time being
deriving their title to the Debentures.
COMPANY'S REQUEST FOR FINANCIAL ASSISTANCE.
Company has approached the Debenture holders for financial assistance to the
company for long term capital requirements and the Debenture holders have
agreed to advance financial assistance in the form of subscription to 18.5%,
21,00,000 non-convertible. Privately placed debentures of Rs.100/- each to the
extent mentioned below :
of Debenture holders Letter No. & Date Amount in lacs UTI
DOI/2945/G-76/96-97 23.4.97 400 LIC INV:C:KAJ DT. 21.4.97 1000 GIC INV./97 DT. 23.5.97
175 NIC INVT/UW/DEBS DT.30.5.97 105 NIA INV/PM/BUD/72/96 DT. 10.6.97 175 OIC
DEPTT. INVESTMENT DT 30.5.97 105 UII HQ:INV:262:97 DT. 30.5.97 140 Total 2100
2.2 DEBENTURE SHALL RANK PARI PASSU :
Company shall ensure that the Debentures shall rank pari passu inter se to all
intents and purposes without any preference or priority of one over the other.
RIGHT TO REVIEW THE RATE OF INTEREST:
Company agrees and undertakes that the Debenture holder(s) shall have a right
to review the rate of interest as mentioned herein. The Company shall pay
interest on the Debentures at the rate that may be stipulated by the debenture
holder(s) as a result of such review. The company also agrees and undertakes to
obtain all necessary consents from the concerned authorities in accordance with
the then prevailing rules and regulations and to sign all deeds and documents
that may be required in this regard and to endorse the revised interest rates
on the Debenture Certificates as and when communicated by the Debenture
Company agrees and undertakes to redeem the debentures to all the debenture
holders in three equal yearly installments from the end of 4th year from the
date of allotment and ending in the 6th year from allotment.
of Debenture Rs. in lacs Holders At the end of 4th year 5th year 6th year from
the date of allotment UTI 133.33 133.33 133.34 LIC 333.33 333.33 333.34 GIC
58.33 58.33 58.34 NIC 35.00 35.00 35.00 NIA 58.33 58.33 58.34 OIC 35.00 35.00 35.00
UTI 46.66 46.67 46.67 Total 699.98 699.99 700.03 The debenture holders may at
the request of the company in suitable circumstances and also in the absolute
discretion of the Debenture holders, subject to the statutory guidelines as may
be applicable for the purpose, revise/postpone the redemption of the debentures
or any party thereof outstanding for the time being or any installment of
redemption of the said debentures or any part thereof upon such terms and
conditions as may be decided.
any reason the amount of the Debentures finally subscribed for by the debenture
holders is less than the amount of the debentures agreed to be subscribed the
installment(s) of redemption will be reduced proportionately but will however
be payable on the due date as specified.
Company shall issue debenture certificate/s to the debenture holder/s after
making necessary compliance to the provisions of section 113(1) of the
Companies Act, 1956 read with the Companies (Issues of share Certificate)
the debenture holders/trustees shall otherwise agree, the Company shall not :
DIVIDEND Declare and/or pay any dividend to any of its shareholders, whether
equity or preference, during any financial year unless the company has paid to
the debenture holders the installments of principal, if any interest commitment
charges, costs charges and other moneys payable under this agreement upto and
during that year or has made provisions satisfactory to the debenture holders
for making such payment.
CHARGES Create or permit any charges or lien on any assets of the Company
except as provided in Article-IV, hereof. For the purpose of this clause, the
term 'Lien' shall include mortgages, pledges, shares, privileges and priorities
of any kind and the term 'assets' shall include revenues and property of any
AMENDMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION Amend its Memorandum and
Articles of Association or alter its capital structure except as specified
MERGER, CONSOLIDATION ETC.
or permit any merger, consolidation, re-organization, scheme of arrangements or
compromise with its creditors or share holders or effect any scheme of
amalgamation or reconstruction, e) INVESTMENT BY THE COMPANY Make any
investment by way of deposits, loans, share capital etc. in any manner.
REVALUATION OF ASSETS Revalue its assets.
on any general trading activity other than the sale of its own product."
In terms of the Common Subscription Agreement on or about 17.9.1997, a
Debenture Trust Deed was created, the relevant clauses whereof are as under :
MODIFICATIONS TO THESE PRESENTS :
Trustees shall concur with the Company in making any modifications in these
presents which in the opinion of the Trustees shall be expedient to make.
that once a modification has been approved by consent in writing of the
holder(s) of the Debentures representing not less than three fourths in value
of the Debentures for the time being outstanding or by a special resolution
duly passed at a meeting of the Debenture holders convened in accordance with
the provisions set out in Fifth Schedule hereunder written, the Trustees shall
give effect to the same by executing necessary Deed(s) supplemental to these
xxx "The Third Schedule above referred to Financial Covenants and
DEBENTURES TO RANK PARI PASSU The debentures shall rank pari passu inter se
without any preference or priority of one over the other or others of them.
VARIATION OF DEBENTURE HOLDERS' RIGHTS The rights, privileges and conditions
attached to the Debentures may be varied, modified or abrogated in accordance
with the Articles of Association of the Company and the Act and with the
consent of the holders of the debentures by a Special Resolution passed at the
meeting of the Debenture holders, provided that nothing in such resolution
shall be operative against the Company where such resolution modifies or varies
the terms and conditions governing the Debenture if the same are not acceptable
to the Company." "The Fourth Schedule Above Referred to Form of
Debenture Certificate Xxx xxx xxx The Fifth Schedule Above Referred to
Provisions for the Meeting of the Debenture holders
meeting of the Debenture holders shall, inter alia, have the following powers
exercisable in the manner hereinafter specified in Clause 23 hereof : xxx xxx xxx
Power to sanction any compromise or arrangement proposed to be made between the
Company and the Debenture holders.
Power to assent to any scheme for reconstruction or amalgamation of or by the
Company whether by sale or transfer of assets under any power in the Company's
Memorandum of Association or otherwise under the Act or provisions of any law.
The powers set out in Clause 22 hereof shall be exercisable by a Special
Resolution passed at a meeting of the provisions herein contained and carried
by a majority consisting of not less than three-fourths of the persons voting
thereat upon a show of hands or if a poll is demanded by a majority
representing not less than three-fourths in value of the votes cast on such
poll. Such a Resolution is hereinafter called "Special Resolution".
Resolution, passed at a general meeting of the Debenture holder duly convened
and held in accordance with these presents shall, be binding upon all the
Debenture holders whether present or not, at such meeting and each of the
Debenture holders shall be bound to give effect thereto accordingly, and the
passing of any such resolutions shall be conclusive evidence that the circumstances
justify the passing thereof, the intentions being that it shall rest with the
meeting to determine without appeal whether or not the circumstances justify
the passing of such resolution.
Notwithstanding anything herein contained, it shall be competent for all the
Debenture holders to exercise the rights, powers and authorities of the
Debenture holders under the said Trust Deed by a letter or letters signed by or
on behalf of the holder or holders of at least three-fourths in value of the
Debentures outstanding without convening a meeting of the Debenture holders as
if such letter or letters constituted a resolution or a special resolution, as
the case may be passed at a meeting duly convened and held as aforesaid and
shall have effect accordingly." Encumbrances having admittedly been
created in favour of the debenture holders including the Appellant No.2 herein,
in respect of the properties of the Respondent herein situated at Chikalthana, Nasik
and Waluj in the State of Maharashtra wherefor a legal mortgage by way of
Debenture Trust Deed was created on the Debenture Certificate issued to the
parties as contained in Annexure R-4 appended to the Counter Affidavit filed on
behalf of the Respondent, the relevant provisions whereof read as under :
Debenture Certificate is issued in terms of the Debenture Trust Deed dated 17th
day of September, 1997 ("the Trust Deed") entered into between the
Company and the Industrial Credit and Investment Corporation of India Limited
("the Trustees"). The Trustees will act as Trustees for the holders
for the time being of the Debentures ("the Debentures holders") in
accordance with the provisions of the Trust Deed. The Debenture holders are
entitled to the benefit of and are bound by and are deemed to have notice of
all the provisions of the Trust Deed. All rights and remedies of the Debenture
holders against the Company in respect of arising out of or incidental to the
Debenture shall be exercisable by the Debenture holders only though the
Debentures are issued subject to and with the benefit of the Financial
Covenants and Conditions endorsed hereon which shall be binding on the Company
and the Debenture holders and all persons claiming by, through or under any of
them and shall enure for the benefit of the Trustees and all persons claiming
by, through or under them. The Company hereby agrees and undertakes to duly and
punctually pay, observe and perform the Financial Covenants and Conditions
endorsed hereon." It is accepted that the total sums invested by the
financial institutions in the aforementioned debentures is to the tune of
Rs.197.43 crores whereas UTI invested a sum of Rs.19.57 crores i.e. only about
10% of the total investment.
Respondent herein having regard to the aforementioned restructuring scheme
filed an application before the High Court of Judicature at Bombay in terms of Section 391 of the
Companies Act which was marked as Company Petition No.269 of 2003. In the said
proceedings except UTI, all other debenture holders sanctioned the
the learned Company Judge, the Appellants herein, inter alia, contended :
regard to clause 7.5 of the agreement, the Respondent is totally precluded from
filing the said application before the court without its consent;
Respondent had suppressed material facts in the sense that disclosure to the
effect that the Respondent-Company was granted relief under the Bombay Relief
Undertakings Act, 1958 had not been made to the said court;
proposed scheme of arrangement is unfair, unreasonable and unjust which no
prudent businessman will accept; and
UTI being an investment company forms a separate class by itself and, thus,
cannot be compared with other financial institutions, as they are only lenders
whereas UTI is an investing agency.
learned Company Judge rejected all the contentions raised on behalf of the
Appellants herein in terms of its judgment and order dated 1.10.2003. Aggrieved
by and dissatisfied therewith, an appeal was preferred by the Appellants
herein, which was dismissed by a Division Bench of the said Court by reason of
the impugned order dated 12.4.2004.
Rajeev Dhawan, the learned Senior Counsel appearing on behalf of the
Appellants, took us through various documents and principally raised the
following two contentions in support of this appeal :
Clause 7.5 of the agreement having not been found unfair or unconscionable is
not hit by Section 28 of the Indian Contract Act and
The negative covenant as contained in clause 7.5 of the agreement in relation
to the matters specified therein is imperative in nature.
would urge that clause 7.5 being a consent clause, the Respondent herein could
not have taken any action in violation thereof as thereby the entire investment
plan of the Appellants would be put to jeopardy.
attention was drawn to the fact that the Respondent herein obtained moratorium
in terms of the provisions of the Bombay Relief Undertakings (Special
Provisions) Act, 1958 on 6.8.2001 whereupon a notification was issued declaring
the Respondent Company as "Relief Undertaking" and thereby directing
that any right, privilege, obligation or liability accrued before 6.8.2001
would be suspended and any remedy for enforcement thereof shall also be
suspended and all proceedings relating thereto before any court, tribunal,
officer or authority shall be stayed. Such moratorium was extended by
notifications dated 6.2.2002, 5.2.2003; and February 2004 for a period of one
year commencing from 6.2.2004 to 5.2.2005.
to Section 28 of the Indian Contract Act, Dr. Dhawan would submit that the said
provisions must be read in the light of the definition of 'consideration' as
contained in Section 2(d) thereof having regard to the fact that the negative
covenants are included as a part of consideration therein and, thereby no
absolute bar was created for enforcing the rights of the Respondent under or in
respect of the agreement in any ordinary tribunal. The Respondent, Dr. Dhawan
would argue, had no legal right to maintain an application under Section 391 of
the Companies Act as it was not an ordinary Tribunal.
Company Judge, according to Dr. Dhawan, merely exercises a supervisory
jurisdiction in terms of Section 391 of the Companies Act and keeping in view
the fact that by reason of a negative covenant even a right can be extinguished
or foreclosed, the High Court committed a serious error in holding that clause
7.5 would be hit by Section 28 of the Indian Contract Act. In support of the
said contentions, strong reliance has been placed by Dr. Dhawan on M/s M.G.
Brothers Lorry Service vs. M/s Prasad Textiles [(1983) 3 SCC 61]; A.B.C. Laminart
Pvt. Ltd. and Another vs. A.P. Agencies, Salem [(1989) 2 SCC 163]; Food
Corporation of India vs. New India Assurance Co. Ltd. and Others etc. [(1994) 3
SCC 324]; National Insurance Co. Ltd. vs. Sujir Ganesh Nayak & Co. and
Another [(1997) 4 SCC 366]; Nutan Kumar and Others vs. IInd Additional District
Judge and Others (2002) 8 SCC 31];. Shri Lachoo Mal vs. Shri Radhey Shyam
[(1971) 1 SCC 619]; Miheer H. Mafatlal vs. Mafatlal Industries Ltd [(1997) 1
SCC 579]; Kempe and another (joint liquidation [1998) 1 BCLC 234]; and Re Hawk
Insurance Co. Ltd. [(2001) 2 BCLC 480].
learned counsel would contend that the Appellants herein stand absolutely on a
different footing vis-`-vis the other creditors as they invest money on a long
term basis whereas the Appellants make investment for the benefit of the
members of the mutual fund.
J. Sorabjee, the learned Senior Counsel appearing on behalf of the Respondent,
on the other hand, would submit that the agreement dated 19.6.1997 must be read
with the trust of deed dated 17.9.1997 and so read it would be seen that the
Appellants herein did not have any power of veto so as to frustrate such a
scheme which is beneficial to all the debenture holders.
to the learned counsel, clause 7.5 does not confer an absolute or unbriddled
power upon all the debenture holders but the same having regard to the
principle of corporate democracy would only mean that such a decision would be
taken by the majority of debenture holders. As the Appellants herein, the
learned counsel would argue, made contribution only to the extent of 10% of the
total amount lent by the debenture holders and their right being pari passu
with other debenture holders, they cannot claim a preferential right. If clause
7.5 of the agreement is read in the manner, as suggested by the Appellants
herein, Mr. Sorabjee would urge that thereby words have to be added thereto
which is impermissible in law as by reason thereof one debenture holder would
be conferred a power of veto resulting whereof not only in violation of the
principle of corporate democracy would be violated, but a change in the
integrity of the document would also be brought about.
28 of the Indian Contract Act was invoked by the Respondent before the High
Court, it was contended, only because the Appellants herein raised a contention
that by reason of clause 7.5 an absolute bar has been created in moving an
application under Section 391 of the Companies Act.
the purpose of this case, we shall proceed on the premise that clause 7.5 of
the agreement is valid and is not hit by Section 28 of the Indian Contract Act.
Common Subscription Agreement was entered into by and between the Respondent
herein and all the debenture holders. The debenture holders named therein are
collectively referred to by that expression and the expression means the
debenture holders specified therein deriving their title to the debenture. The
said agreement was entered into having regard to the fact that the Respondent
approached all the debenture holders for financial assistance for meeting their
long term capital requirement in response whereto which debenture holders
agreed to advance various sums of monies, in the form of subscription to 18.5%,
21,00,000 non-convertible privately placed debentures of Rs.100/- each. Out of
the total investment of Rs.21,00,00,000/- made by the debenture holders, the
contribution of the Appellant is only Rs.4,00,00,000/. The Respondent in terms
of the said agreement had undertaken to redeem the debentures in three equal instalments
from the end of fourth year of the date of allotment and ending in the sixth
terms of clause 2.2 all debenture holders are entitled to be treated pari passu
inter se wherefor no preference or priority of one over the other can be given.
Industrial Credit and Investment Corporation Limited became the trustee for the
debenture holders. In the agreement wherever an individual right has been
conferred upon the debenture holders, they have been described as debenture
holder(s) or debenture-holder/s. Debenture certificates were issued to the
debenture holders in terms of the Debentures Trust Deed pursuant whereto they
became entitled to the benefits specified therein but they were bound by and
were deemed to have notice of all the provisions of the Trust Deed. The rights
and remedies of the debenture holders against the company were to be exercised
only through the trustee.
7.5 contains a negative covenant which enjoined the company not to undertake or
affect any scheme of amalgamation or re-construction unless the debenture
holders/trustees would otherwise agree.
this mean that all the debenture holders/trustees singularly or collectively
must agree thereto that the decision of the majority shall prevail, is the
question involved in this appeal.
at the outset notice that clause 7.8 of the said agreement uses the expression
'any or all of debenture holders'. The parties to the agreement, therefore,
have used two different expressions in the said agreement, namely,
or all of debenture holders.
have noticed hereinbefore that the debenture holders have been referred to in
the agreement in the said capacity collectively. The definition of debenture
holders contains the expression 'means' which shows that it is not an expansive
definition. The category of the debenture holders are confined to those who in
terms of the agreement are holders of the debentures deriving their title
terms of clause 10 of the Trust Deed, the rights, privileges and conditions
attached to the debentures may be varied, modified or abrogated only in
accordance with the Articles of Association of the Company and the Act and with
the consent of the debenture holders by a special resolution passed at the
meeting of the debenture holders but in terms of the proviso appended thereto
nothing in such resolution shall be operative against the company where such
resolution modifies or varies the terms and conditions governing the
debentures, if the same are not acceptable to the company.
Trust Deed speaks of such resolution also in terms of clauses 22 and 24
thereof. Clause 25 provides that such a resolution may be adopted by
circulation of letter or letters. The provisions of the Trust Deed and in
particular clauses 22, 23, 24 and 25 thereof leave no manner of doubt that a
resolution has to be passed in the manner laid down therein and/or in terms of
the Companies Act.
common subscription agreement is an investment/ loan agreement. The provisions
contained therein are required to be read in their entirety and for the said
purpose it is permissible to read the negative covenants with the positive
covenants. It will, however, not be correct to say that the common subscription
agreement has to be interpreted on its own without any reference to the trust
deed. The provisions of the trust deed, in our opinion, can be referred to for
the purpose of giving a true meaning to the agreement, as there does not exist
any conflict between the two. They are to be considered together for the
purpose of finding out as to how the agreement can be worked out.
Court in this case is not called upon to interpret the nature of a document or
the covenants entered into by and between the parties. The agreement specifies
the rights and privileges of the parties thereto and in particular the rights
and privileges of the debenture holder either collectively or individually.
underlying or basic thread of the agreement vis-`-vis the trust deed is that
the majority principle was accepted by the authorities. They do not provide for
an unanimity; or any veto power in favour of one debenture holder so as to
scuttle the decision of the majority.
Ram and others vs. State of Madhya Pradesh [AIR 1978 SC 1594], this Court
noticed the observation of Justice Frankfurter in Massachusetts B. &
Insurance Co. vs. U.S. [(1956) 352 US 128 at 138], which is to the following
is no surer way to misread a document than to read it literally" It is
true that a negative covenant by itself is not invalid in law. But it is also
true that it requires a strict construction. The agreement is a commercial
document. Commercial documents must be construed in a manner as are understood
in commercial parlance. A commercial document must be read reasonably. It must
be construed in such a manner so that it is made workable.
parties to the agreement are commercial concerns. Each party would indisputably
try to protect its interest when advancing loans or making investment but it
must also be conceded that they were aware of the risk factor involved therein.
The factors which are responsible for sufferance of loss by the Respondent
herein to the extent of 228.58 crores was as a result of market situation then
prevailing, i.e. steep devaluation of currencies of Korea and Indonesia who
were the major suppliers of film in the international market as a result
whereof they started dumping the materials at cheap prices in Europe, and the
levy of anti-dumping/anti- subsidy duties by the European Union as a result
whereof sales to European countries came down drastically.
restructuring package was evolved at the instance of the Industrial Development
Bank of India which was the largest lender and the trustee upon obtaining a
report in that behalf from KPMG, a reputed concern. A scheme envisaged under
Section 391 of the Companies Act, it is well- settled, is a commercial
391 read with Section 393 of the Act postulate that where a compromise or
arrangement is proposed between a company and its creditors or any class of
them; or between a company and its members or any class of them, the court is
required to direct holding of meetings of creditors or class of creditors or
members or class of members who are concerned with such a scheme. In the event
majority of the creditors representing three-fourths in value of the creditors
or class of creditors or members or class of members, as the case may be,
present or voting either in person or by proxy at such a meeting accord their
approval thereto thus put to vote, whereupon, the court may consider the
question of grant of sanction thereto. Section 391(1)(a) enjoins that requisite
information therefor should be placed for consideration before the voters, in
terms whereof the creditors or class of creditors can take an informed decision
in relation thereto. The court, however, would not grant sanction to such a
scheme only because the same reflects the will of the majority of the creditors
or a class of them but it must consider all aspects of the matter so as to
arrive at a finding that the scheme is fair, just and reasonable and does not
contravene public policy or any statutory provision. Such a care or caution is
required to be exercised by all courts including the Civil Court in terms of
Order XXIII, Rule 1 of the Code of Civil Procedure.
scope and jurisdiction of the Company Court has been examined at some length by
a Division Bench of this Court in Miheer H. Mafatlal (supra) wherein the broad
contours of such jurisdiction have been enumerated indicating :
That the proposed scheme of compromise and arrangement is not found to be violative
of any provision of law and is not contrary to public policy. For ascertaining
the real purpose underlying the scheme with a view to be satisfied on this
aspect, the Court, if necessary, can pierce the veil of apparent corporate
purpose underlying the scheme and can judiciously X-ray the same.
That the scheme as a whole is also found to be just, fair and reasonable from
the point of view of prudent men of business taking a commercial decision
beneficial to the class represented by them for whom the scheme is meant."
In J.K. (Bombay) (P) Ltd. vs. New Kaiser-I-Hind Spg. & Wvg. Co. Ltd. &
Ors. etc. [(1969) 2 SCR 866], it was held :
principle is that a scheme sanctioned by the court does not operate as a mere
agreement between the parties : it becomes binding on the company, the
creditors and the shareholders and has statutory force, and, therefore the
joint-debtor could not invoke the principle of accord and satisfaction. By
virtue of the provisions of sec. 391 of the Act, a scheme is statutorily
binding even on creditors and shareholders who dissented from or opposed to its
being sanctioned. It has statutory force in that sense and therefore cannot be
altered except with the sanction of the Court even if the shareholders and the
creditors acquiesce in such alteration" It is not the case of the
Appellants that the learned Company Judge has exceeded his jurisdiction and
acted in violation of the said guidelines.
it is held that the normal rule, namely, the principle of majority in corporate
democracy or in other words, governance of the company by majority, is
accepted, the Appellants could not be heard to say that they had an absolute
right to exercise veto power and thereby scuttle a bona fide attempt to revive
a company. Efforts to keep a company from becoming insolvent and even to revive
an insolvent corporate have been receiving legislative and executive support,
as would be evident from several Parliamentary Act, as for example the Sick
Industrial Companies (Special Provisions) Act, 1985 and the Securitization and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
difficult for us to agree with the submission of Dr. Dhawan that clause 7.5
puts a total embargo on the part of the company or other creditors to file a
compromise under Section 391 of the Companies Act without obtaining the consent
of all debenture holders. Clause 7.5 neither can be read in such a manner nor
should be read. Such a construction would be unwarranted having regard to the
fact that two different expressions have been used in different clauses.
Wherever a right has been conferred upon an individual debenture holder, the
agreement used the expression 'any or all the debenture holders' as contrasted
by all debenture holders. The debenture holders are required to exercise their
right through the trustee save and except in the cases which confer specified
power to them. The Appellants herein cannot claim any priority or preference in
the matter of realization of their dues over the other debenture holders. Each
debenture holders has a pari passu right with each other, as is evident from
J.K. (Bombay) (P) Ltd. (supra), it was held :
Court could not have completed, as contended by the appellants, their rights
which were still incomplete or order the company to execute a debenture trust
deed or the second mortgage, and thus set up the appellants and the other Sch.
'B' creditors as secured creditors against the rest of the unsecured creditors.
Such an order could not be passed as it would be contrary to and in breach of
the right of distribution pari passu of the joint body of unsecured creditors."
SCALE 178] In view of the our findings aforementioned, we are of the opinion
that the Appellants herein having failed to establish that they could hold the
entire scheme to ransom so as to stall the proceedings as a result whereof the
majority of debenture holders would be deprived, the purpose or object
motivating the Appellants to advance such a huge amount to the Respondent
against issue of debentures is a matter of little or of no concern to the
Respondent - company or other debenture holders. A special or a new right
cannot be found in favour of the Appellants in the agreement when it creates none.
The scheme applies equally to all debenture holders and as such the Appellants
cannot be treated as a separate class. Once the Respondent-Company prima facie
showed that the scheme is fair and reasonable and also that the requisite
majority of the debenture holders recorded their decision in its favour, the
court in absence of any unforeseen unjustness or unreasonableness therein ought
not to reject the same.
Company Judge by reason of the impugned judgment while exercising a supervisory
jurisdiction only accepted the scheme. The High Court's decision is not being
questioned as unfair.
Respondent in view of the Scheme has no remedy other than approaching the High
Court under Section 391 of the Companies Act.
Amarjit Singh Kalra (Dead) by Lrs. and Others etc. vs. Pramod Gupta (Smt.)
(Dead) by Lrs. and Others etc. [(2003) 3 SCC 272], this Court stated :
far as possible, courts must always aim to preserve and protect the rights of
the parties and extend help to enforce them rather than deny relief and thereby
render the rights themselves otiose, "ubi jusibi remedium" (where
there is a right, there is a remedy) being a basic principle of jurisprudence.
Such a course would be more conducive and better conform to a fair, reasonable
and proper administration of justice." We may at this stage refer to the
decisions relied upon by Dr. Dhawan. [(2002) 8 SCC 31] the question which arose
for consideration was as to whether a lease in violation of statutory provision
was void. Such a question does not arise for consideration herein. SCC 825],
the court was concerned with the interpretation of a deed of lease.
Both sides have relied upon certain passages in Odgers' Construction of Deeds
and Statutes (5th Edn. 1967). There (at pp. 28-29), the First General Rule of
Interpretation formulated is: "The meaning of the document or of a
particular part of it is therefore to be sought for in the document
itself". That is, undoubtedly, the primary rule of construction to which
Sections 90 to 94 of the Indian Evidence Act give statutory recognition and
effect, with certain exceptions contained in Sections 95 to 98 of the Act. Of
course, "the document" means "the document" read as a whole
and not piecemeal." (Emphasis supplied) There is no quarrel with the
aforementioned position of law.
1 SCC 19], the court was concerned with the interpretation as to whether a
document in question was a lease or a licence. The said decision has been
rendered on the fact of the said case and on the basis of the evidence brought
on records as to whether the tailor and the ice-cream vendors had been put in
exclusive possession in the tenanted premises. The said decision has no
application to the fact of the present case.
4 SCC 545] again dealt with a similar question. It was observed:
Lastly, it is to be noted that if the document is a camouflage as stated
earlier, the mask or veil is required to be removed for determining the true
intent and purpose of the document. In the present case, there is no pleading
by the defendants that the document was a camouflage so as to defeat the rights
of a tenant who had inducted the appellant or that of the owner of the
premises. As stated earlier, the document contemplates three types of agreements,
one, that of a leave and licence;
in case a consent is obtained from the tenant (sic landlord), for execution of
a sub-lease which would create an interest in the property as a sub-tenant and
thirdly, in case of a sub-lease, for purchase of equipment, fitting and
fixtures at a price of Rs 2,50,000. The second and third parts of the agreement
never came into operation.
for the reasons discussed above, we hold that the agreement dated 18-7-1970 is a deed of "leave and licence" and not a
"lease"." The said decision also has no application in the
view of our findings aforementioned, it is not necessary for us to enter into
the question as to whether clause 7.5 of the agreement is hit by Section 28 of
the Indian Contract Act or not.
not find any merit in this appeal which is dismissed accordingly. However, in
the facts and circumstances of the case, there shall be no order as to costs.